Employment Rights Bill

Committee stage
Tuesday 29th April 2025 Lords Chamber

Committee (1st Day)

Relevant documents: 7th Report from the Constitution Committee, 20th Report from the Delegated Powers and Regulatory Reform Committee. Northern Ireland legislative consent granted, Welsh and Scottish legislative consent sought.

15:38

Amendment 1

Moved by

[Lord Fox]

1: Before Clause 1, insert the following new Clause—
“PurposeThe purpose of this Act is to—(a) improve the fairness and security of employment;(b) facilitate cooperative arrangements between employers and workers, including the protection of workers’ rights and wellbeing;(c) make provisions about pay and conditions in certain sectors; (d) facilitate constructive workplace relations between employers and workers representatives, including trade unions;(e) make provisions about the enforcement of labour market legislation.”Member’s explanatory statement
This amendment inserts a new Clause at the beginning of the Bill to set out its overarching purpose and provides a framework for understanding the aims of the legislation.

[Lord Fox (LD)]

My Lords, in moving Amendment 1, I will also speak to Amendments 283 and 327.

In February 2023, Keir Starmer launched Labour’s five missions. The first is to get the UK’s economic growth to the highest sustained level in the G7 by the end of Labour’s first term. I need hardly remind your Lordships that it is with that mission, and the four others, that the Labour Party went on to win the general election with a majority. Since then, the Government have unwisely raised employers’ NICs and introduced this Bill. It is through those lenses that business views the Government’s attitude towards it.

Amendment 1 is an attempt to set this legislation in context, and I thank the noble Lords, Lord Sharpe of Epsom and Lord Hunt of Wirral, for also signing it. It was quite difficult to come up with wording that the PBO would let past its eagle eyes, but I am sure that the Minister will not find much of this objectionable. For example, proposed new paragraph (a) sets out the need for “fairness and security” as drivers for the Bill; I am sure the Minister will agree with that. Proposed new paragraph (c) is well represented in this Bill, as large parts of it set out new rules around trade unions.

However, I will spend some time discussing proposed new paragraphs (b) and (d). I cannot read this Bill without the feeling that it envisions just two states of employment—happy workers represented by unions and abject employees working in non-unionised concerns—but, of course, that is not true. Even in the very welcome conversations with the Minister, there seems to have been little recognition that the vast majority of people in this country are in employment where the facilitation of co-operation agreements between employers and workers is not automatically dependent on their union status. Let us remind ourselves that, for most people, those co-operative arrangements work pretty well, and that the proportion of UK employees who are trade union members is around 22% in this country. Constructive workplace relations can be forged in many ways other than via direct representation of employees by their unions.

When the Minister generously gave her time to meet with me on this Bill, she explained that discussions between government, employers’ organisations and the unions had been constructive and amicable. I am sure they were, but those selfsame employers’ organisations have also raised serious alarm over this Bill. The British Chambers of Commerce, the CBI, the IoD, the FSB and Make UK all sent a joint letter, which I am sure all noble Lords have received and read. The B5, as it is known, is not alone: all manner of industries—including hospitality, food and drink, and employment agencies—have raised serious concerns about the Bill. The telling phrase in the B5 letter is:

“For us the challenge has never been what the government wants to achieve, but the unintended consequences of how they implement it. Unfortunately, the Bill locks in several irreversible policy directions that will force business to make difficult choices between jobs, investment and growth”.


The Minister may well say that she is getting equally forceful lobbying from the unions. Indeed, I believe that the noble Lord, Lord Hendy, will provide ample evidence of that with his later amendments. She may say that the Government are pitching this Bill in the middle of these respective positions—and she may claim, on that basis, that the Bill is in the right place. However, Governments are elected not to work out the average position of policy but to make the right decisions. I ask the Minister to take on board the concerns of business and, importantly, to recognise that there are issues in this Bill, which, if not addressed, will impede the Government’s chances of delivering their mission of economic growth.

Small and medium-sized enterprises are the backbone of the UK economy, accounting for a huge proportion of the business population and employing approximately 16.7 million people—around 61% of private sector employment, according to data from the Federation of Small Businesses. In that regard, the Minister should recognise that the impact of many of the measures in the Bill will disproportionately affect small and medium-sized businesses. These smaller businesses have neither the administrative horsepower nor the reservoir of human energy required to meet the collection of tasks that the Bill will introduce. Given their economic footprint and vital role in local communities, SMEs must be central to the purpose of the Employment Rights Bill. Placing SMEs at the heart of the Bill’s purpose offers an opportunity to foster better employment relations while supporting enterprise, resilience and long-term growth.

15:45

It has proved a step too far to include an explicit mention of SMEs in Amendment 1. However, any effort to improve employment relations and a culture of fairness at work will not succeed unless it meaningfully supports and engages SMEs. This depends on clear, proportionate and practical regulation. In that regard, as Committee progresses, we will seek to make things easier for SMEs—and, indeed, for all other businesses.

At this point, I highlight the following measures. There needs to be a change in the polarity of the guaranteed hours obligation offer to offer a more streamlined right to request. There also needs to be a recognition that the current arrangement does not work in the case of seasonal jobs; we will come to that. There needs to be a confirmation that the probation period will be nine months; this should not be left hanging while the Act commences. The statutory sick pay arrangements for SMEs need to be changed to ensure that the costs are shared. There needs to be a clearer picture of the role of tribunals, with the ability quickly to strike out cases that cannot succeed, and a better understanding of how the public funding of claimants will work.

Overall, your Lordships needs to understand what the statutory guidance will look like. We need to know how this Act will work and what it will mean in practice. In many respects, the Government are asking your Lordships to stand back and allow them to formulate the details of the Bill gradually, as more and more government amendments flood in and consultations still progress—with outcomes set well after the Government hope to finish the Bill. Some might say that they are making it up as they go along, but I will not. Either way, this is not the way to formulate important legislation such as this. We need to know what it actually is. The consultations should precede, not succeed, the drafting of a Bill. Government amendments should be few and trivial, not many and fundamental. The operational details of the proposed legislation should be clear and obvious, not opaque.

That last point is why I have included in this group Amendment 283, on a code of practice, and Amendment 327, which would tie commencement to the publication of a code of practice. These would allow the Government to set out all of the issues that need to be clarified, including how the Bill will operate in practice if and when it becomes an Act, and would ensure that the Act does not commence until this process has happened. In other words, the details would be nailed down firmly before the Act gets under way.

At first sight, Amendment 283 might seem like a long list but, in fact, it is not half of how this Bill will reach into working life. The amendment would require the Secretary of State to publish a code of practice that provides employers with guidance on complying with the Act. The code should set out best practice, compliance monitoring and enforcement procedures. It should ensure necessary consultation with stakeholders and would enshrine a review every five years. We need to see a draft of this code before this Bill progresses to its final stage; I would be happy to discuss with the Government how to make this happen. I beg to move Amendment 1.

[Lord Hunt of Wirral (Con)]

My Lords, briefly, I thank the noble Lord, Lord Fox, for bringing forward this important purpose clause amendment, which I must tell him—I know he is always surprised when I praise him—is a very cleverly worded amendment to which my noble friend Lord Sharpe of Epsom and I were very happy to add our support.

I do not know why this Bill has had to be rushed through within 100 days. Given the significance of this legislation, surely it would have been better if the Government had committed themselves to ensuring thorough and proper scrutiny. However, we have seen the introduction of 160 amendments on Report in the House of Commons—amendments which, in many cases, received no or little meaningful examination.

Even more concerning is the fact that the Government have tabled 27 amendments for Committee in this House. We have received a letter from the Minister warning us that there are more amendments in the pipeline on fire and rehire, the fair work agency, employment Bill time limits, trade union reform and maritime employment. What on earth is going on? Why was not this Bill properly prepared? This has meant that the letter to which the noble Lord, Lord Fox, referred is virtually saying to the House of Lords, “Please, on behalf of all the employers—and, indeed, all the businesses in the UK—we rely on you in the House of Lords to scrutinise this Bill properly”. I just do not think that this is the right way to treat Parliament. We owe it to the legislative process and to the public we serve to ensure that our scrutiny is neither rushed nor compromised.

No doubt the Minister will argue that a purpose clause is completely unnecessary. However, we respectfully disagree, and not only for the reasons raised by the noble Lord, Lord Fox. It is vital for the Bill clearly to articulate its overarching aims: not simply to modernise employment rights in name but to set out a clear ambition to create a fairer, more secure labour market; to encourage genuine co-operation between employers and workers; to protect rights and well-being in the workplace; to ensure proper standards for pay and conditions across sectors; and to guarantee robust enforcement of labour protections. I have to say that, without a purpose clause, this Bill risks being directionless and, worse, risks unintended consequences that neither workers nor businesses can possibly afford.

I think also—and I hope the noble Lord, Lord Fox, will agree—that a purpose clause is particularly important where there are a large number of delegated powers to make regulations within it. In effect, the Government are saying, “Please give us the power to do whatever we would like to do whenever we would like to do it”. The committees of this House have, time and again, urged Governments to turn their back on these Henry VIII clauses and present Parliament with clear cases to amend primary law, not do it through secondary legislation.

Well, there is growing concern about this Bill, which is why the British Chambers of Commerce, the Confederation of British Industry, Make UK, the Institute of Directors and, in particular, the Federation of Small Businesses, which between them represent thousands of businesses across the country, have published this open letter to the House of Lords, asking for urgent changes to the Bill. They did so because they are deeply concerned that, as drafted, the Bill will make it harder, not easier to create fair, secure and co-operative workplaces. They warn that the Bill will increase risk and uncertainty for businesses precisely at the moment when we need businesses to invest, to hire and support in particular those who are at the margins of the labour market.

I do not think that the substantive concerns of all the businesses quoted by the noble Lord, Lord Fox, have been listened to. I just hope that the Minister can respond when she winds up this debate. I look forward to the speeches from all sides of the House. I will not quote in detail from the letter, but it does remind me of the words of Milton Friedman. If I am ever to find myself quoting Milton Friedman, I suppose that this is the moment. He said:

“One of the great mistakes is to judge policies and programmes by their intentions rather than their results”.


Well, fine phrases about modernising employment rights and updating legislation are no substitute for carefully considered, properly scrutinised measures that deliver real-world improvement. So that letter from all those businesses is not a warning but a plea to this House. It is a recognition that we as the revising Chamber have a unique and critical responsibility to ensure that this Bill works. They are not closing the door on the Government but offering, at the end of the letter, to work with us all and with Ministers to help improve legislation.

In conclusion, if we are to get all these amendments, can we hear from the Minister how many more amendments we are going to get and when? The Government Chief Whip is constantly referring us to the Companion. I have never quoted from the Companion before, but it has pretty severe words for a Government who choose to table amendments at the last moment, without proper notice. So could we hear from the Minister what further amendments are planned, when we will receive them, and which parts of the Bill will be fundamentally altered? Here we are, at the start of Committee, still not knowing what the Government are proposing.

In an unguarded moment, the Minister disclosed to me that she has an implementation plan, which I understood from her was in draft. This House ought to see the draft implementation plan. Why can we not see it? Perhaps we could help the Minister produce the final draft. We should not get an implementation plan half way through Committee. Could we hear from the Minister on when we will see the implementation plan? A lot of businesses up and down the length and breadth of this country are totally uncertain about what the detail of this Bill will be. It is about time that we heard from the Minister about what the Bill seeks to do, what its purpose is and whether we can see it in its full form before we go any further with Committee.

[Lord Monks (Lab)]

My Lords, I will speak to Amendment 1 and avoid the temptation to engage in a mini-debate across the whole width. So far, I feel I have been sitting in a Second Reading debate. I have given speeches in this House before, reflecting similar sentiments to those in this amendment about fairness and co-operation. These are the words used in the amendment from the noble Lord, Lord Fox. I gave them in the context of the debates on Conservative anti-union laws, which we have addressed in this House in my time. Sadly, no one on the Conservative Benches, except for the noble Lord, Lord Balfe, who is in his place, paid any heed. The laws then proceeded to the statute book and the result was an imbalance in British employment law very much in favour of employers.

The Bill goes some way towards correcting that. Once it has been implemented, I hope we can look again at a system of mature collective bargaining of which we all can be proud. But first, we must replace the imbalance, and do so speedily, because it is glaring. Change is desperately needed; our labour market is characterised by high inequality—only two OECD countries have a bigger gap between rich and poor and between top earners and the very low-paid.

16:00

Wages are stagnant. Living standards and skills are poor compared with our European neighbours’. How many people have recently been shocked to find that the gap with Ireland is as wide as it is? We know that productivity, which we have debated in this House, has languished for quite a long time. Insecure forms of work have been growing. There are negative effects on health outcomes in this country compared with others. Large-scale inequality is really bad news.

I say to the Conservative Party that it needs to recognise that the Thatcher experiment with deregulated labour markets and some unwise privatisations—think Thames Water—and an economy heavily dependent upon a volatile financial sector that too often resembles a giant casino or adventure playground for private equity and hedge funds, and generates low rates of investment outside property, has failed comprehensively.

It is a time for a change of approach, and this Bill, together with a new industrial strategy which is being worked on, can help provide it. I call on the Opposition, probably in hope rather than expectation, to give it a fair wind.

[Baroness Stowell of Beeston (Con)]

My Lords, I am generally somewhat nervous about purpose clauses, but I can see the argument in the case of this Bill, because there is a lot of confusion about what it is trying to achieve. Indeed, it serves to highlight the incoherence of this Government’s approach to generating economic growth, because it places far too much of a burden on businesses and will deter them from innovating, recruiting and investing in skills training, which we know is so very important right now.

That is particularly pronounced within the tech sector, which is one of the Government’s priority sectors because it has the potential to drive a vast amount of growth, but it is also one where we need to do far more to encourage investment so that our homegrown tech firms can scale and compete around the world. We must not forget that investors have a choice as to where they invest, and they will not go to countries where the costs are higher.

Although it is not properly an interest to declare, it is perhaps worth reminding your Lordships that until very recently, I chaired the Communications and Digital Select Committee of your Lordships’ House, and during my term in the chair we looked at the tech sector quite a bit, as noble Lords would expect. Our final inquiry was about scaling up in AI and creative tech.

I am sure the Minister, who is also a DSIT Minister, has seen that techUK, the industry’s trade body, has this morning raised some genuine concerns about the Bill. Its website says:

“With no economic modelling underpinning these proposals, businesses are being asked to shoulder new burdens without a clear understanding of the impact. There is a growing risk that entrenched positions will lead to a worst-case outcome, one that stifles innovation and investment in jobs. This is counter to the government’s pro-growth mission. We urgently call for further discussion and refinement to ensure the Bill supports businesses and protects workers”.


Alongside techUK, the Startup Coalition, which focuses specifically on start-ups, says in its briefing note on the Bill that it is concerned that without careful tailoring, the barriers the Bill currently introduces into hiring and scaling at the early stages of business development could undermine the start-up ecosystem and the economic growth it drives.

I do not know whether I would have succeeded had I tried to do this, given what my noble friend said about the punctiliousness of the Table Office—and I would be interested to hear more from my noble friend about this—but I suggest that any purpose clause also refers to growth and competitiveness. When the Minister winds up, I would welcome her explanation of how this Bill supports the Government’s growth agenda.

I know, from talking to a range of tech firms and businesses from all sectors and of all sizes, that while they all support good employment practices and condemn those firms that do not uphold high standards—as do I—there is frustration that the good employers are paying the price, literally, for the poor conduct of the bad. For them, the Bill represents a desire by the Government to do something to them that makes it even harder for them to create the economic growth that the Government have promised the electorate and, indeed, their workers. Let us be clear: it is business, not government, that generates economic growth.

As I say, a purpose clause has some merit in the context of this Bill, but I would like growth and competitiveness to feature within it. If we were to do that in the purpose clause and get some agreement from the Minister up front today, that would help to shape the Bill as we go through Committee, so that it actually delivers on what I think it is trying to do: to ensure that there are good employment practices that support economic growth and competitiveness.

[Baroness O’Grady of Upper Holloway (Lab)]

My Lords, I admit that I am a little perplexed by Amendment 1, particularly in the light of the latest TUC-commissioned poll that was published last night. Not only is the Bill popular with the public, including a majority of Conservative and Reform voters, but, when they are faced with robust arguments against its key provisions, the Bill becomes even more popular with voters.

I am not sure that your Lordships or the public need this amendment to know that the Bill is about fairness, security and the right to an independent voice at work. The public are already well aware and, frankly, appalled that, under the previous Government, low pay and insecurity became mainstream in British working life. They want change.

Underlying this amendment—this might be my suspicious mind—is the worry that it is really about undermining the role of independent trade unions in representing workers’ interests. The ILO uses the term “workers’ organisations” for a reason. International law upholds the right to collective bargaining and freedom of association. Independent trade unions are workers’ best chance of getting their rights enforced and built on for better pay, safer workplaces, training opportunities and family-friendly hours, and they provide a democratic voice at work.

Without repeating the arguments from Second Reading, I encourage your Lordships to look at the evidence about just how far Britain has fallen behind other countries in employment protection, and how giving ordinary working people a stronger collective voice can help deliver more responsible businesses and a healthier and more equal society.

I encourage the noble Lord, Lord Fox, to cast his mind back to Labour’s introduction of a national minimum wage. He may remember that the Conservative Party and the business lobby said that a national minimum wage would cause mass unemployment and that businesses would collapse. In reality, the national minimum wage is now widely respected as one of Britain’s most successful policies. It has made a difference to millions of working lives in the teeth of opposition from the business lobby at the time. It is worth remembering that.

I end by saying that it is time to get on with and get behind the Bill, so that Britain takes the high road to improving business productivity by treating workers fairly, as human beings and not just commodities.

[Lord Balfe (Con)]

My Lords, it is a great pleasure to address a quorate meeting of the TUC General Council. I should declare an interest at the beginning: I am the honorary president of BALPA, the British Airline Pilots Association, a union that covers all the people who fly you on holiday and back again. Its motto or strapline for many years was

“every flight a safe flight”.

It regarded its job as to deal not only with the members but with safety. In dealing with the companies that we dealt with and still deal with, aircraft safety and looking after passengers was as much at the front of our mission as anything to do with pay and conditions. Of course, we were interested in them—we were a trade union, after all—but we were a responsible trade union. I stand on this side of the House pretty convinced that probably a majority of the members of BALPA support this party. Let me remind the House why.

Most people do not join a trade union for any political purpose. They often join, as I did at the age of 16, because it is there. Nowadays, most trade unions, particularly the better ones, have a free legal advice service and will get you a discount on your car insurance. I have told this story once before, I think, but at a point when we had a silly dispute between my family and the bursar of our local private school, I rang up the union solicitor and he drafted me a letter to send to the bursar very quickly. I apologised and said, “I am sorry. I dare say this is not what you are normally here for”. I will always remember his reply. He said, “Mr Balfe”, for I was that in those days, “we are not here to judge our membership. We are here to help them”. At the basis of virtually every trade union official and action is the desire to help the membership. Nobody I know regards going on strike as anything other than a defeat, because it means the members do not get paid, you often lose pension entitlement, and you lose your wages. You know, people go to work to get their work done, to get a reasonable wage.

I always had a lot of time for a person who is almost unmentionable in modern politics, Edward Heath, because I thought that he came nearer to understanding the TU movement than probably any leader of the Conservative Party and maybe any leader overall. Indeed, I remember when I was a much younger trade union person in the 1960s asking a group of Conservatives who they thought was the best Secretary of State for Labour there had ever been. The result was unanimous: Sir Walter Monckton, Conservative Minister under Churchill, was reckoned to be the one who listened to them the most. You always have to have a runner-up in these things just in case one falls down, and that was Iain Macleod.

16:15

We do not have to have this level of political enmity between the workers and the trade union movement and the political establishment. My view is that many of the Thatcher reforms are at the base of the problems the TU movement has today: the emergence of things such as broad lefts, not to mention the appallingly low turnout when it comes to union elections. Many of the reforms just have not worked—if you say “worked” was what they were supposed to do. They were supposed to invest people with interest in their unions, getting them all fired up to vote in elections. As an almost lone supporter of Sharon Graham, who is my union general secretary—not to be confused with the one I am president of—I can say that the fact is that if you go to the Cambridge branch of retired members of Unite, they are not really interested in politics at all. Many of them quite like Sharon because they think, “Oh well, she looks after the members instead of looking after herself”, which I am afraid was an image that had grown up in the movement.

So what I am hoping for—we are a bit off the point but, after all, this is Amendment 1—is that, by the time we finish with the Bill, we will have knocked together a consensus so that trade unionism is not always at the front and the punchbag for people who want a row. The fact of the matter is that, if you analyse the Labour Party’s funding, most of it comes from very rich people, not from trade unions at all. If you look at today’s Times—or maybe it is the Telegraph—the headline is about the unions taking on the Government because they are not going to implement the full terms of the pay review body. But none of the unions concerned pays a penny to the Labour Party. They are actually completely independent. Many people, until they ended up with me as the Conservative trade union envoy, did not even realise that the BMA was a trade union at all. They thought it was a collection of doctors who sat around with stethoscopes around their necks and tried to bully the Government. I explained to the Conservative Front Bench of our great leader, the noble Lord, Lord Cameron, that the BMA was a trade union; we used to say, “There’s only one union in Britain you really need to be afraid of, and that is Hamish Meldrum and the BMA”, because in terms of getting money out of the Government for his members he was the most successful union leader of probably any of them at all.

So I wish the Bill well. I will certainly be keeping an eye on it, with a view to shaping legislation that will put to bed the silly rows that we are always having and get a genuine partnership between the state and the trade union movement.

In my final sentence, I will take your Lordships back 100 years, to the papal encyclical Rerum Novarum, which is the fundamental basis of Christian democracy and Christian democrat trade unionism in Europe, where I was for almost 50 years. I see the noble Lord, Lord Monks, in his place there. He was secretary general of the ETUC, and is well aware of the way in which continental trade unionism works. It is not perfect, but in many ways it is better than the bunfight that passes for dialogue in Britain.

[Baroness Carberry of Muswell Hill (Lab)]

My Lords, I follow on from the excellent points that have been made by my noble friends on this side of the Committee by addressing, perhaps more specifically, the letter of Amendment 1. I preface my remarks by saying that I might be new to this, but I am a bit puzzled because I thought that the Benches opposite did not like purpose clauses. In the past, when Labour proposed such clauses, there was some push-back, and this side has been accused of poor practice and of risking provoking unintended consequences.

My main problem with the proposed new clause is that the list provided is not exhaustive and understates the Government’s ambition with this Bill. If we were to put our heads together to produce an exhaustive list of purposes, perhaps we might include the purpose that the Bill helps give effect to the Government’s manifesto promise to make work pay. We might also want to add that the ambition is to help stimulate economic growth, building on the extensive international evidence we have that shows that labour market protections lead to improved economic outcomes, including higher productivity. We might also want to mention that the Bill aims to end exploitative practices and redress the balance between employer and worker, and that it seeks to modernise trade union legislation.

My general point is that perhaps we do not need such an extensive list. I invite the noble Lord, Lord Fox, to clarify for us in his response in what way a non-exhaustive list, as provided in this amendment, is any better in advancing understanding of the intentions of the Bill than no list at all.

[Lord Hendy (Lab)]

My Lords, I too rise to address Amendment 1. It is a pleasure to follow my noble friend Lady Carberry. I am not clear about the purpose of Amendment 1. It seems to me that the Government have laid out the purpose of the Bill in the Long Title. It has been given a very Long Title that sets out its ambit.

What I am clear about, however, is the need for this Bill. Last August, a report by Professor Deakin and Dr Barbakadze of Cambridge University, Falling Behind on Labour Rights, stated that

“on almost every measure of employment protection, the UK is significantly behind the average for other countries in the Organisation for Economic Development and Cooperation (OECD), 38 countries generally understood to be those with a high level of economic and social development globally … As they stand, labour laws in the UK are barely half as protective as those found in France and significantly below other notable European countries … This strongly suggests that there is significant scope for improvement before British labour law is even close to matching that of our nearest neighbours”.

My noble friend Lord Monks mentioned inequality in the United Kingdom in comparison with other countries. The OECD has also considered that. It currently ranks Britain as the eighth most unequal of 40 major economies in terms of income inequality. Among EU member states, only Bulgaria and Lithuania are more unequal than the United Kingdom. The European Participation Index ranks the degree of worker participation in business decision-making in different European countries. The UK is rated 26th out of 28, with lower participation than all countries except Latvia and Estonia.

There are many other metrics by which the current state of play can be judged, and the status quo is simply not acceptable. I will not mention them all, but I will mention just three. First, median pay in this country is currently just over £600 a week. Median does not mean average; it means the pay point of half the working population. In other words, half of workers earn less than just over £600 a week, although half earn more than that. Secondly, of those on universal credit, 37% are actually in work. Thirdly, we find that 6.8 million people are in insecure work; three-quarters of them—that is, some 5 million workers—are in what is described as “severely insecure” work.

The Bill does not do all that I think it should. I had the honour to serve as the legal adviser on the working party that drew up A New Deal for Working People. It is clear that there are major differences. In later debates in Committee, I will seek to move some amendments to redress some of what I consider to be the shortcomings. Overall, however, the need for the Bill is simply unarguable. We cannot go on in the way that we are at present, with workers denied a voice at work, working in insecure conditions and on extremely low pay. The Bill will go a long way to assist in putting that right.

[Lord Empey (UUP)]

My Lords, I hope this Bill does not turn into a Punch and Judy show between employers on one side and organisations and trade unions on the other, because it obviously has a number of meritorious proposals. However, the forensic introduction to the amendment by the noble Lord, Lord Fox, illustrates that this piece of legislation is a work in progress. I understand why the Government deem it so important, but they have to concede that a lot of it is being done on the hoof, which is undermining the Government’s position.

I had the privilege of being Employment Minister in Belfast for three and a half years, and I worked very closely with business and trade unions during that period. The last piece of legislation I did had the racy title—I am sure the Minister would be very happy to adopt it—of the Employment (No. 2) Bill. It is the sort of thing that lets the blood course through your veins. But the one area where we have failed as a country for years and years is skills. We talk about it, we have apprenticeship models, we have this, that and the other, yet we still have not solved the problem. We got rid of the old-style tecs, colleges and so on, and we have been stuck in a rut ever since.

It is obvious that there have been abuses and insecurity, and there is no point in trying to deny that; I listened carefully to what the noble Lord, Lord Monks, had to say. However, there is something that I feel a bit concerned about. We live in a world where, by and large, the major trade unions operate with large employers, whether it is the public sector or big organisations, but the bulk of the industry—the bulk of the growth in employment and everything else—comes from small businesses and micro businesses, and they do not have the capacity or the risk-taking capability in how and when they employ people.

It strikes me that there is a risk of issues creeping into what we are trying to do in this country that could have the unintended consequence of making it less likely for people to employ individuals. We have to look at the international situation. We cannot ignore what is going on. There is a revolution taking place that is having a negative effect. We also have the employer national insurance contribution. We cannot ignore that either; it is a big deal.

16:30

If we come to a point where an employee on day 1 has the same rights as someone who has been there for some considerable time, there is a large risk, particularly for a small or micro business, that in taking on one individual you get a square peg in a round hole. That does happen; let us face it. If you have only half a dozen employees, you are in serious trouble. I accept that in this day and age we do not need a two-year waiting phase—in my experience, the biggest offender of using that system was the Civil Service—but, as we go through the Bill, there has to be some recognition that small employers have to be taken into account.

I understand what the noble Lord, Lord Fox, is trying to do. Whether we add to the purpose clause—the noble Baroness, Lady Stowell, had a couple of additions in her mind—is probably not the point, but I hope we do not turn this into a bunfight. There are things we can do here that will be positive and will help people, but we must have cognisance that we do not want to damage the potential for people to be employed by making things so difficult for the small employer that they are frightened away from the necessary investment and recruitment that we so desperately need. Yes, we have to be fair, but we have to be practical.

I listened carefully to what the noble Lord, Lord Hunt of Wirral, said, and there were some very good points. This is a patchwork quilt that we are getting as we go along. For such important legislation, I think we have to pause and get our act together so that the House can see exactly what the big picture is and, if we have a clause such as the noble Lord, Lord Fox, and his colleagues are suggesting, that it at least matches what follows in subsequent parts of the legislation.

There is some good stuff here and there is potential, but there is also risk. I hope that, after we have progressed through the amendments, we can send legislation back to the other place that is in better shape than it is today.

[Baroness Neville-Rolfe (Con)]

My Lords, I am speaking from the Back Benches to make two brief points. I apologise for not speaking at Second Reading.

First, if we have to have a purpose clause—it is not an approach that I particularly favour—it has to include a reference to competitiveness, growth and perhaps, as the noble Baroness, Lady Carberry of Muswell Hill, has suggested, productivity. Does the Minister agree?

Secondly, like my noble friend Lord Hunt of Wirral, I am shocked at the number of government amendments made to the Bill at such a late stage, and to legislation that is so important to all parts of business, all employers in the public sector and of course all employees, and their representatives, whom the noble Lord, Lord Monks, rightly referenced.

I have some sympathy for the Minister. I had a similar experience with the Procurement Act, although it was not quite as bad because we had consulted extensively, and it was a Lords starter. But like this Bill, it was introduced before it was ready and needed a large number of amendments. As the responsible Minister, I was very keen to listen to criticism of the detail and respond by agreeing to amendments or tabling government amendments that responded to the genuine difficulties, and I think there are genuine difficulties with this Bill. We worked across the House very well and I hope the noble Baroness will consult her Front-Bench colleagues, the noble Baronesses, Lady Chapman and Lady Hayman of Ullock, who engaged constructively in scrutiny on all the procurement detail.

Another good example is the minimum wage legislation referenced by the noble Baroness, Lady O’Grady. I remember when I was at Tesco persuading the then Labour Government that they should not include a requirement to put the national minimum wage on all payslips. It was going to cost us millions and require a change in our IT systems. Labour listened and the implementation of the Act went more smoothly as a result. It is very important to listen to the practicalities when making these changes. They can affect different parts of the Bill in different ways.

Finally, we have heard a lot about Europe and comparisons with Europe. I have spent a lot of time in Europe, but I would be interested to hear also about what is going on in the growing markets of Asia and—I suppose until more recently—the growing market of the United States.

[Lord Evans of Rainow (Con)]

My Lords, I will speak briefly to Amendment 1 from the noble Lords, Lord Fox, Lord Sharpe and Lord Hunt. Paragraph (c) would

“make provisions about pay and conditions in certain sectors”.

My noble friend Lady Stowell of Beeston made some very good points about the tech sector—those entrepreneurs and businesses of the future. It was very important to hear what she had to say. However, I wish to stand up for the hospitality sector. Do any of the Members opposite know what it is like to run a hospitality sector business and the challenges of employing people to cater and serve in that sector?

UKHospitality recently launched the social productivity index, which shows that the hospitality sector is also a key driver in socially productive growth, not only contributing to economic expansion but fostering social mobility and regional development. With 57% of the workforce working 30 hours or fewer per week, the sector offers flexible employment options that make it particularly accessible to students, carers and parents—I do not know how many noble Lords in this Chamber today at some stage in their career worked in hospitality, but it is an excellent first opportunity to get into the world of work.

Unfortunately, in broad terms, the proposed changes in the latest set of amendments to the Bill seem destined to result in a framework of requirements that are more likely to hinder than to promote growth in the hospitality sector. In particular, without further addressing the concerns of businesses and considering alternative options, it is felt that the Bill is likely to lead to reductions in staff recruitment, the rate of wage growth and the level of investment. The Bill looks likely to hinder hospitality businesses and restrict growth. It seems to assume that all employers are bad actors with regards to their dealings with their staff. This is patently not the case for the majority of businesses, which recognise the need to recruit and retain staff and ensure they are supported and secure at work.

There still appears to be a disregard for seasonal business models and unpredictable trading in sectors such as pubs and wider hospitality businesses, which are required to adapt quickly to changes in trade patterns determined, for example, by weather or other events outside their control. A reduction in businesses’ ability to respond quickly and proactively to changing demand will undoubtedly result in higher operating costs. That will naturally need to be met by either increasing prices, reducing other staff costs or reducing investment.

These impacts are compounded by the Budget announcements on employer NICs and national living wage rates. Spiralling employment costs will be exacerbated by the additional cost and administrative burdens that the Bill will layer on top, all impacting investment and growth. The unintended consequences of this Bill are slower wage growth and recruitment. I am sure the Minister does not intend that to be the case. Can she reassure the Committee that it will not be the case if the Bill goes ahead as it is?

[Lord Moynihan of Chelsea (Con)]

My Lords, I support this important amendment and endorse the serious concerns just now expressed by the noble Lord, Lord Fox, and my noble friend Lord Hunt of Wirral. I declare my interests as a businessman, an entrepreneur and an investor.

The noble Baroness, Lady O’Grady of Upper Holloway, questioned the need for a stated purpose for the Bill. I am not sure what the logic is there: the most likely reason for a Bill having no purpose is a lack of clarity by its sponsors as to what they are trying to achieve. The noble Baroness, Lady Carberry of Muswell Hill, complains that the list stated in the amendment is non-exhaustive, which I agree with, and then somehow jumps to the conclusion that no list at all would be preferable. Again, I am afraid the logic of that escapes me.

I am far less experienced than my noble friend Lady Neville-Rolfe, but I feel that there is always an obvious advantage in having a purpose clause. In the case of this Bill, I am sure the Government must agree that those who will face the task of interpreting the meaning of the Bill in the future should be given as much clarity as possible, through a purpose clause, as to why the Bill was passed and what its purpose was. Courts in the future will far prefer to have a lucid statement of what the new law sets out to accomplish, rather than being given too wide latitude and freedom to interpret the Bill in this way or that. So I commend the overall objective of the noble Lord, Lord Fox, and hope that the amendment, or similar, will form part of the eventual Bill.

This very lengthy Bill will, if passed without a purposes section, be more open to abuses of the extensive powers it contains. This amendment would put a few appropriate, albeit modest, restraints on the ability of a Government to go too far in applying these powers. To be clear, this proposed purpose clause from the noble Lord, Lord Fox, is just a start and, for me, not completely satisfactory by any means. The list is indeed not exhaustive. In addition, the additional amendments would burden companies with yet another compliance code of conduct, which will serve to send sensible non-executives screaming from the room and possibly off to Dubai. We have to let boards focus on managing their businesses, serving their customers and making sure it is a well-run business, not having to implement new compliance code after new compliance code that will only ever be observed with lip service.

On this point of a non-exhaustive list, I wish to add to the list of purposes of the Bill, in addition to the wording that my noble friend Lady Neville-Rolfe suggested, an additional purpose of supporting, improving and not reducing flexibility in employment relationships. We will move on to the issue of flexibility in the next group of amendments, so I will not expand on that point here, but I recommend the addition of that purpose, as well as the wording proposed by my noble friend Lady Neville-Rolfe, to the list in Amendment 1.

[Baroness Noakes (Con)]

My Lords, I have never been much enamoured with purpose clauses, although they are a convenient way of having an early debate on the principles of a Bill before we get stuck into the detail. Indeed, we can see that the opportunity and attraction of another Second Reading debate is irresistible to noble Lords. Part of the reason is probably that when we have Second Readings nowadays, at most about four minutes are allowed, but when we get into Committee we have 10 minutes, which is a wonderful way of proceeding.

The noble Lord, Lord Fox, has tried to encompass the Government’s aims for the Bill in his wording of Amendment 1, but in doing so he has not covered the whole content of the Bill. I agree with the noble Baroness, Lady Carberry, on that, although we probably will not agree on much else during the passage of the Bill. For example, Clause 75 repeals the Strikes (Minimum Service Levels) Act 2023, which we knew the party opposite hated when we enacted it. That Act empowered employers to set minimum service levels in a few defined public services so that service users, such as NHS patients and commuters, did not have to suffer the massive disruption that we have seen inflicted by the unions that are active in the public sector. Repeal of the 2023 Act takes away the power to protect public service users, and does nothing that fits within the purposes put forward by the noble Lord, Lord Fox, in his Amendment 1. Does that mean that Clause 75 should not be in the Bill? If not, what is the purpose of a purpose clause? Perhaps the noble Lord can answer that.

16:45

Another clear purpose of the Bill, though it is not spelled out in Amendment 1, is to allow trade unions to increase their memberships by giving them powers to push into non-unionised areas. Trade union membership has been declining; only about 20% of the workforce is signed up, and they are disproportionately in the public sector. If trade union membership were a good thing, it would not need this Bill to give the unions power to barge into workplaces uninvited. The real purpose of the Bill is to provide payback to the Labour Party’s paymasters. That too should be in the purpose clause if it is to be comprehensive.

I have a problem with purpose clauses in general—and this one in particular—because they do not focus on outcomes. I believe that one of the outcomes of the Bill will be to reduce employment opportunities for some important groups of workers. The young, the disabled and those with patchy employment records or a history of ill health are already an employment risk. Giving them day-one rights and the increase in statutory sick pay just raise the risks of employing these people, so many employers will do their best not to take them on to the payroll. Similarly, the complexity and inflexibility of the rights to guaranteed hours will reduce opportunities for those who want flexible working, because employers will not expose themselves to the risks of acquiring those employees to obtain such rights.

In general, the Bill will make employing people an unattractive proposition. It will probably incentivise businesses to look to non-human resource solutions wherever possible, which might be great for suppliers of capital investment but not so great for the humans who want jobs. Whatever the Bill’s intentions, its consequences are likely to be negative for many employees. I am neither for nor against Amendment 1, but I am absolutely clear that it neither covers the Government’s full aims for the Bill nor captures the consequences of the Bill if it is enacted in anything like its current form.

I am also ambivalent about the concept of a code of practice, which is the other part of the amendments in this group tabled by the noble Lord, Lord Fox. My main reason for this is that it will be a complete monster. This is a 300-page Bill and, if the Government keep tabling amendments like the complicated ones in their first batch last week, it will be very much longer. I struggle to see how a single code of practice can avoid becoming so large and unwieldy that it becomes inaccessible. It will end up like the Financial Conduct Authority rulebook.

That also speaks to whether it is wise to load the business sector with so much in the way of new rules and regulations. I am sure that will be a theme of many of our debates, particularly in relation to small, micro and medium-sized businesses, as a number of noble Lords have already referred to, and I certainly look forward to that.

[Lord Frost (Con)]

My Lords, I support Amendment 1, although possibly not for quite the same reasons as those already expressed in this Chamber, and I regret I was not able to speak at Second Reading.

When dealing with a purpose clause, one cannot avoid spending a moment dwelling on the broader principles behind the Bill before coming to the amendment itself. It is worth noting that one of the reasons the British economy has surprised so many people over the last decade or so on the upside, despite all the gloomy predictions, is because it is an extremely flexible and responsive economy, particularly in the labour market. Most indices of these things put us in the global top 10 of labour market flexibility, which I regard as a good thing, although clearly many noble Lords who have spoken do not.

There is a paradox here, in that flexibility is the best way of delivering security—maybe not in any individual job, but security of employment and income over a period. The Government seem to think that the only way to ensure job security is to put in place more and more intrusive and detailed legislation to require it. That is why we are going to be discussing, no doubt at great length and with huge complexity, this massive Bill which tries to do just that. It is damaging that the Bill is being made up as it goes along to such a large extent; it just multiplies the complexity and difficulty.

I do not think that is the right way to look at job security. The best way to look at it is that flexibility produces security. If it is easier to change the terms and conditions of a job, or easier to dismiss people if they do not fit, then it is also easier to re-employ or shift resources from low-productivity to high-productivity sectors and to deliver growth in the economy. The approach in the Bill protects insiders at the expense of entrepreneurs and those who are outside the labour market, so it is not surprising that the representatives of trade unions are so supportive of it. The trade unions represent the insiders, but they are not the only people who have an interest in labour market flexibility.

I make these points because they go to the difficulty of drafting a satisfactory purpose clause for this Bill. It is desirable to have a purpose clause for something that is so complex and sprawling in the way it tries to legislate. The noble Lord, Lord Fox, has written it as cleverly and clearly as he possibly could in the circumstances. It is cleverly written, but the difficulty is not so much that it is not sufficiently exhaustive but that it contradicts the contents of the Bill. It sets out a number of things which the Bill simply does not do. For example, in paragraph (a) of the proposed new clause, it talks about “fairness”. Well, that may be fairness for employees on one definition but not for employers or those who are outside the formal labour market. Whose fairness are we talking about?

Paragraphs (b) and (d) in the proposed new clause do not “facilitate”—to use the word in the amendment—good labour relations; they actually make them more bureaucratic, complicated, difficult and hard to implement. Paragraph (c) makes provision for pay and conditions but, arguably, it should not be doing that at all—that is not the business of the Government but the business of employers and employees. The only one that is an accurate description of what is in the Bill is paragraph (e), the simple statement that it is to

“make provisions about the enforcement of labour market legislation”,

which it certainly does.

I am not sure that there is a satisfactory way of dealing with this. Nevertheless, I support this purpose clause amendment, because it seems to me that if it were to pass, the logical consequence, to be consistent, would be that large parts of the rest of the Bill would have to fall away to be consistent with the expressed purpose in this purpose clause. If the Bill were to be internally consistent with the things that we say are desirable, then much of this Bill is simply not consistent with that. Now, what goes first—the purpose clause or the rest of the Bill? I think we know how that is going to play out. Nevertheless, that is why it is difficult to get to a satisfactory purpose clause for this Bill. It would be good if much of the Bill fell away—no doubt we will come on to that in the next seven days—as it is going to cause a lot of damage to the economy and to growth.

To conclude, I support the amendment, if not perhaps for exactly the same reasons that others have supported it. It will enhance and make clearer, to some extent, what is a very sprawling, complex and unsatisfactory Bill.

[Baroness Coffey (Con)]

My Lords, I will speak to all of the amendments in the group. I spoke at Second Reading. As my noble friend Lady Noakes pointed out, we only had four to five minutes then, so this gives us an opportunity to consider further what the purposes should be. In the document published by the Labour Government, the Deputy Prime Minister and the Secretary of State for Business and Trade referred to the fact that this would be about getting more people into work. So far under this Administration, we have, unfortunately and regrettably, seen unemployment rise.

At the same time, comments have been made by noble Lords on the other side, such as by the noble Lord, Lord Monks, who referred to income inequality. What he may have forgotten is that, under the previous Labour Administration, income inequality rose. Meanwhile, under the recent Conservative Administration, income inequality fell. So, this is a case of trying to make sure that, as we take the legislation through, we focus on the outcomes it will have for people right across this country, rather than dogma. There is a combination of factors where, frankly, flexible labour has generally improved the prosperity of people in this country.

The noble Lord, Lord Hendy, complained that people in work were on universal credit. That is a large point of it. We have finally got rid of tax credits, which went earlier this month. Those had been introduced by previous Labour Governments in order to increase people’s pay—which employers were not doing. It was done in a rather crude way, such that capital was not taken into account. When we were moving people from tax credits to universal credit, we discovered—particularly early on, when we were doing some of our test and learn approach—that there were people with capital of over £100,000 who were still receiving tax credits and who decided that, although they would be entitled to one more year of such a transition payment, they did not think it was right to do so.

It is about that sort of element, of trying to consider what we want to see as an increase in prosperity and productivity. However, I am concerned, given the recent increase in unemployment and all the messages that we are receiving from businesses, small and large, that we will instead start to see a significant increase in unemployment and indeed more people going on to benefits. As I say, the whole point of universal credit is that you will be better off working than not working. The approach is to try and support people as they reach higher salaries.

My noble friend Lady Neville-Rolfe is right to say that, if we were considering further things to add to the proposed new clause set out in Amendment 1, competitiveness and growth should be there. I would add that the outcome should also be about increasing the number of people in employment. I know that the Secretary of State for Work and Pensions has set an exceptionally ambitious target of 80% of people being in work—which would be the highest in an exceptionally long time—but, to do that, she needs to work with other parts of her Government to make sure that more jobs will be created, so that people can go into those jobs at the rate that is set.

After thinking through what will happen with this legislation, I made the point at Second Reading that the Bill started off at 149 pages—and I am conscious of the 100-day deadline set by the Deputy Prime Minister to present it—and that it had basically doubled by the time it left the Commons. Not a huge amount of time was set aside for consideration of the additional 103 pages that were considered on Report there. As we have already heard, we are starting to see more amendments come in from the Government that this House needs to consider.

17:00

Although it may seem like red tape, I understand the intent of the further amendment from the noble Lord, Lord Fox, talking about a code of practice. I assume that the Government do not want to see many more employment tribunals, because they take so long and often lead to even more complications in case law that need to be considered. If a very small company wants to take on another person to work—my noble friends made this point eloquently—it simply will not have access to the wide number of legal efforts that will be required in crafting changes to ongoing business as it starts to see growth. Indeed, I remember a particular business in Southwold where, frankly, the work was entirely dependent on customer demand: however, that suited a number of the people in that town and the villages around it, who would add hours of work, recognising the opportunity to get some more pay.

In rural and coastal areas, the median salary is considerably lower than in many towns and cities around the country. Of course, the employer would only be able to do that based on the quality and demand from customers for that role. People had no expectation that they would simply be given an extra contract, recognising the contracted work they already had elsewhere, in quite the same way that I think the Government seem to consider that anybody on certain kinds of contracts is entirely reliant. Thinking about the purpose of the Bill, we should certainly seek to increase the number of people in employment, given that they are the words of the Deputy Prime Minister and the Secretary of State in their Next Steps to Make Work Pay when they describe the intended outcomes of this legislation.

On the amendment I referred to, at times it feels that so much guidance ends up becoming somewhat like the FCA rulebook, as has been said. As we start to take account of other legislative decisions or “clarity”, as the Government said in relation to the Supreme Court’s recent ruling, it will be critical—to avoid industrial conflict, a backlog or a significant increase in employment tribunals—for the Government, in due course, to set out not only the implementation plan that we have heard of but how employers can get on and do their jobs.

Ultimately, I am conscious that the Government did put this in their manifesto, but we need to make sure that the legislation is fit for purpose and that it does not end up creating unemployment rather than employment. I also believe that the way that the noble Lord, Lord Fox, tabled his final amendment in this group is a sensible approach of saying that nothing else can start until it is clear for employers how they are expected to undertake this massive legislation, which will add to the already complex employment law situation we have today.

[Baroness Meyer (Con)]

My Lords, I, too, support what the noble Baroness, Lady Noakes, and the noble Lord, Lord Frost, said. I too am very worried about this Bill and its outcome, which be to kill job creation, drive away investments and slow economic growth. It could drive unemployment, fuel inflation and trigger social unrest. It risks taking us back to the economic chaos of the 1970s, when trade unions held the country to ransom.

Back then, strikes paralysed the country. Businesses went bust and the UK entered a period of stagnation and crisis known as the “winter of discontent”. Some of us are old enough to remember it. Inflation soared to 24% in 1975. The economy flattened. The country was forced to beg the IMF for a bailout of around £3.9 billion; that is worth around £20 billion today. I remember the queues, the power cuts and the garbage piling up in the streets. I remember the feeling of helplessness as Britain slid deeper into decline.

Most of all, I remember the humiliation of seeing our great nation ranked as one of the worst-performing economies in Europe. While France and Germany grew richer, we grew poorer. Our reputation was in tatters and we were known as the “sick man of Europe”. It took bold leadership and tough decisions to turn the tide. That leadership came in the form of Margaret Thatcher. Love her or hate her, she saved Britain from economic collapse. She imposed the discipline that was needed to rebuild our economy and restore our standing in the world.

See where we are now. As has been pointed out, if we have consistently outperformed many European countries in recovering faster from the financial crisis and the pandemic, it is because of the flexibility of our economy. Do we really want to follow the French example, where unemployment rates are at 7.4%, with youth unemployment at 19.2%? That is a result of high labour costs, rigid laws, excessive bureaucracy, early retirement and overly strong—

[Lord Evans of Rainow (Con)]

Unions.

[Baroness Meyer (Con)]

Unions; thank you. Remove flexibility and you remove opportunity. This will especially attack young people looking for their first job. We will end up with more workers’ rights but fewer jobs. That is why we need to examine this Bill and take account of all of the amendments—or, possibly, just scrap the Bill altogether.

[Baroness Lawlor (Con)]

My Lords, I support—

[Noble Lords]

Front Bench!

[Lord Katz (Lab)]

I remind noble Lords that we are in Committee, not at Second Reading. We have heard a few speeches now that have strayed a little from the precise content of the amendments that we are speaking to. I urge noble Lords to concentrate on those amendments rather than making Second Reading speeches so that we can get on and make progress.

[Baroness Lawlor (Con)]

My Lords, I support the amendment moved by the noble Lord, Lord Fox, for reasons of transparency and clarity. As we have heard today, there is too much being added to the Bill. We have not had proper sight of the Government’s amendments until it is too late. How can any business plan for the future with this hotchpotch of a Bill changing by the day?

On top of that, I echo what my noble friend Lady Neville-Rolfe said and I would add a competitiveness and growth purpose here. We had it in the Financial Services and Markets Act. It helps to focus people’s minds on the law, on the overall purpose, on what we mean by the economy we run and on what its aims are.

I cannot agree with the noble Lords opposite who point out, with different conclusions, that our labour laws are streets behind those of European countries. Like the noble Lord, Lord Fox, I believe that the dynamism in Britain’s economy is due to it being a competitive market economy—one that has historically been open to trade and competes and, for that reason, can offer job security and good wages on a competitive basis. Part of that is a flexible labour market.

I am worried that this Bill—particularly given that the purpose is not economic growth and competitiveness—will stultify and freeze growth and, as a consequence, the labour market. The people who will suffer will be workers themselves, who will not get jobs or job security. For these reasons, I support the noble Lord, Lord Fox.

I close by remembering a German economist who worked under Chancellor Merkel in her global economics department at the time of the discussions around whether Britain would remain in the EU or leave it. This economist implored Britain to stay, because, without Britain, Europe would have a frozen economy, its labour market would lack dynamism and its competitiveness with the wider world—with the Asian and global markets—would stultify. It therefore seems very bizarre that we are trying to put the clock back on labour market legislation and stop the flexibility which should be at the heart of any dynamic market economy.

[Lord Sharpe of Epsom (Con)]

My Lords, I will speak to Amendments 283 and 327 in the name of the noble Lord, Lord Fox. I note that my noble friend Lord Hunt of Wirral has dealt with the purpose clause in Amendment 1 very comprehensively, so I will say no more on that. I remind the Government Front Bench that it was the noble Lord, Lord Monks, who opened the attacks on Margaret Thatcher. My noble friend is perfectly within her rights to defend the great lady’s record.

There is a growing troubling feeling in many of the businesses that we have spoken to, across sectors, regions and sizes, that the Government see them not as partners in growth or employers to be supported but, as my noble friend Lord Evans of Rainow, noted, as bad actors to be restrained. The sense is that the Government have concluded that virtually all businesses cannot be trusted to do the right thing, and so they are pressing ahead with a centrally planned, top-down approach to employment reform. It is an approach that prioritises control over co-operation, uniformity over flexibility and ideology over evidence. This approach does not benefit businesses: it burdens them with cost and complexity; it strips away the flexibility on which many sectors rely, especially those with seasonal, part-time or rapidly evolving workforces; and it will impede their functionality.

The noble Baroness, Lady O’Grady, said that this Bill is popular, but it is not popular with the Federation of Small Businesses, the British Chambers of Commerce, the CBI, the Institute of Directors, Make UK, nor the Recruitment and Employment Confederation—and, as we have learned from my noble friend Lady Stowell, it is not popular with techUK. They have all raised serious concerns and called for urgent changes.

If there is a groundswell of support out there, it is an incredibly well-kept secret. If there is a group of employers which believe that these changes will make them more confident to hire, invest and grow, we have yet to meet them. Judging by the open letters, briefings and consultations that have been submitted to Parliament, neither have the Ministers opposite. Let us not pretend that this Bill is being driven by the demands of business, because it is not.

I move on to the amendments. The Government claim that this Bill is about protecting workers, but it is time that we recognised that protection cannot come at the cost of opportunity. For many workers, the most important protection is the ability to get a foot on the ladder, gain experience, build skills and find stable, long-term employment.

In that regard, I commend the noble Lord, Lord Fox, on his Amendment 283. I agree with my noble friend Lady Noakes that, in some ways, it risks creating a monster, but I think that, in this case, and because of the nature of this Bill, it will be a friendly monster, because it will at least provide some certainty. As we know, and as anyone who has had a conversation with businesses will tell you, businesses crave certainty more than anything else. The fact that the code of practice is written as it is reflects the complexities in the Bill, the vast array of delegated powers that the Government are about to award themselves and, of course, the lack of certainty.

The noble Lord is entirely right to focus his attention on SMEs. It is worth reminding the Committee that 48% of business turnover and 60% of employment is accounted for by SMEs. In many cases, they will be the businesses without extensive HR departments to help them interpret the facts in this Bill. Therefore, the Government will have to do it for them. This is not perfect, but it deals with the main issues. We would prefer to see no need for this amendment, but, because of the other factors that I have mentioned—the delegated powers and so on—we have no choice.

We need a framework that recognises the diversity of business models, the pressures that employers face and the legitimate role that they play in building opportunity. This is not an employers versus workers situation. We are all committed to improving workers’ rights but we must do so in a way that is realistic, pragmatic and supportive of the broader economy. Without that, we risk achieving the opposite of what we intend: fewer jobs, more uncertainty, greater barriers for the people we are trying to help and, frankly, less equality.

17:15

[The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Information and Technology (Baroness Jones of Whitchurch) (Lab)]

My Lords, I thank the noble Lord, Lord Fox, for his detailed engagement with our Bill and for Amendments 1, 283 and 327. I thank all noble Lords who have contributed to this wide-ranging debate, which has revisited many of the debates that we had at Second Reading.

Amendment 1 seeks to insert a new clause of the beginning of the Bill to set out the overarching purpose and to provide a framework for understanding the aims of the legislation. I thank the noble Lord, Lord Fox, for his challenge on this issue, but it is important to reflect on why we are bringing the Bill forward and what we hope to achieve through it.

The plan to make work pay sets out a significant and ambitious agenda to ensure that workplace rights are fit for the modern economy, to empower working people and, importantly, to contribute to economic growth. Delivery of that plan was, as we have heard, a manifesto commitment and part of the mandate on which the Labour Government were elected. On 10 October, the Government fulfilled their manifesto commitment to bring forward legislation within 100 days of entering office by introducing the Employment Rights Bill.

The noble Lords, Lord Fox and Lord Hunt, and others have asked about the later amendments that have been tabled. I reassure noble Lords that these are technical amendments and that the Committee will have adequate opportunity to scrutinise them all properly. The noble Lord, Lord Hunt, and others asked about an implementation plan. I reassure noble Lords that that will be shared as soon as it is available. We agree that businesses need guidance on the timescale and implementation of the measures in this Bill. We are working at pace to ensure that they have that information.

There is strong support for the measures included in the Bill. The Institute for Public Policy Research found that every constituency in the UK has a majority or plurality of people who believe that workers’ rights should be strengthened. My noble friend Lady O’Grady mentioned the latest poll. In addition, the TUC’s polling and that of HOPE not hate of over 21,000 people across the political spectrum has found strong support for key policies in the Bill. More than seven in 10 of UK voters—72%—support a ban on zero-hours contracts. Three-quarters of voters support giving all workers the right to statutory sick pay and ensuring that it is paid from the first day. Three-quarters of voters support giving all workers protection from unfair dismissal from the first day in their job.

This is a comprehensive Bill which delivers on a clear mandate from the British public. Once implemented, the Bill will represent the biggest upgrade of workers’ rights in a generation. Good employers support this package, because many of them are already delivering these standards. What they do not want is to be undercut on an uneven playing field.

I can give a few examples; I know the Opposition like to ask this question. Centrica, the Co-op, Richer Sounds, Nationwide, IVC Evidensia and IKEA UK and Ireland have all given their support to the measures in the Bill, and a lot of SMEs have done likewise, so it does have resonance with the business community.

Modernising the world of work will raise standards and tackle undercutting so that businesses are empowered to compete in a race to the top. I can reassure noble Lords that the Government, of course, recognise the concerns about the costs to business. The £5 billion figure from our impact assessment is a top-end estimate of the costs, which will largely represent a direct transfer to the lowest paid in society, with the bottom end of the range close to £1 billion.

The costs, therefore, are likely to be under 0.4% of our national wage bill and could even be as low as 0.1%. Furthermore, improving workers’ well-being, increasing productivity, reducing workplace conflict and creating a more level playing field for good employers would grant significant benefits worth billions of pounds per year. That is why delivering the benefits of the Bill would offset the costs.

I can reassure noble Lords that a number of these measures, as I have already said, have strong support from businesses, and we will of course carry on consulting them as we put these plans into practice to ensure that they are as effective as possible. The noble Baroness, Lady Stowell, mentioned the tech sector and will know that I am very minded of this. We will continue to engage with the tech sector on a regular basis to make sure that it contributes everything it can to the Government’s growth strategy.

The noble Lord, Lord Fox, and others have mentioned SMEs, and we will have the chance to debate this later in the Bill. In short, we do not agree that there should be two-tier employment rights: employment rights for all is a fundamental principle.

The noble Lord, Lord Empey, and the noble Baroness, Lady Stowell, talked about skills. We are absolutely committed to a new skills agenda, which is why Skills England is modernising our skills provision. It is an area where, traditionally, the unions and employers have made common cause to make sure that the upskilling of the workforce happens on a comprehensive basis.

This Bill shows the Government’s commitment to strengthening collective bargaining rights and trade union recognition. Our approach will foster a new partnership of co-operation between trade unions, employers and the Government. In response to the point made by the noble Lord, Lord Fox, our reforms remove hurdles that frustrate the voices of workers, but trade unions will still need to win a majority of workers’ votes in a ballot to be recognised by an employer. If workers do not want to be represented by a trade union, they will have the option to vote against recognition in that ballot.

On Clause 1 and the proposed list of priorities, I agree with my noble friends Lord Hendy and Lady Carberry that the purposes are already covered in the Bill. My noble friend Lord Hendy pointed out that the Long Title already addresses the purposes within the Bill, and as my noble friend Lady Carberry pointed out, the list is not exhaustive. If we are to have a list, it would need to be a whole lot longer than it is at the moment and cover a whole range of other aspirations already covered in Labour’s Plan to Make Work Pay.

The noble Baroness, Lady Neville-Rolfe, raised other issues that could be included in that list. Again, I assure her and others that all these issues have been consulted on extensively in the Bill. I would like to reassure noble Lords that there is no need for such a clause to be inserted to achieve this aim. The Explanatory Notes set out the purpose of the Bill clearly and provide further detail on the aims of the legislation. These notes were updated when the Bill transferred to this House and will be updated again when it receives Royal Assent. The Government have also published a series of fact sheets, which are available on GOV.UK and aid the understanding of the Bill’s aims.

Finally, from a legal perspective, inclusion of such a clause could risk producing unintended consequences on the interpretation of specific provisions within the Bill, which have been drafted to achieve the particular purposes concerned. While I understand what the noble Lord, Lord Fox, is trying to achieve, and I appreciate the debate that he has created, I hope I have persuaded him that it is not appropriate to include this in the Bill.

Amendment 283 seeks to require the Secretary of State

“to publish a code of practice providing employers with guidance on complying with the Act”.

This has had much less attention in the debate but, nevertheless, I will attempt to address the concerns that the noble Lord raised.

We have consulted and remain committed to consulting widely on the detail of implementation. The Government have also committed to ensuring that, where appropriate, guidance is published to ensure that all stakeholders have the information they need to make necessary adjustments. However, a Bill-wide code of practice, as suggested in the amendment, would be duplicative of the policy-specific guidance and codes of practice that the Government will already produce to support workers, employers and trade unions in implementing the reforms.

There is existing provision for the issue of guidance and codes of practice across employment law. Where relevant, the Bill amends those provisions to reflect that they will need to be updated to take account of the changes made by the Bill. This includes codes of practice issued by ACAS under the Trade Union and Labour Relations (Consolidation) Act. Such codes are subject to consultation requirements and must be laid in draft in both Houses for approval, and we are already working closely with ACAS to plan ahead for this work.

Where new statutory guidance is required, this is also provided for, such as in Clause 30, which inserts new Section 83D into the Procurement Act to make provision for the issue of codes of practice on relevant outsourcing contracts by appropriate authorities.

By requiring a single Bill-wide code of practice, this amendment would also risk delaying the Government in offering certainty on the details of policy and regulation on individual issues as they become available. I hope I have persuaded the noble Lord that this would therefore result in duplication and unnecessary delay.

Amendment 327 would prevent the implementation of measures in the Bill until the point at which the Government produce a Bill-wide code of practice. Some measures in the Bill will not require any further guidance before they are implemented—for example, the repeal of the Strikes (Minimum Service Levels) Act 2023. Delaying the date on which these measures can commence would unnecessarily delay the point at which workers can benefit from measures in the Bill.

Codes of practice are used to provide guidance to employers on how to comply with employment law. By nature they are detailed, building on and clarifying requirements set out in statute. There are several measures in the Bill where further consultation will be required to develop regulations setting out key details of reforms. Within six months, it would not be possible for all the outstanding policy details to be finalised to inform the content of a Bill-wide code of practice. Codes should bring clarity, but these timelines would risk patchy or unclear content if we were to go ahead on the basis of these amendments.

I agree with the need to ensure that workers, trade unions and employers are sufficiently supported for the implementation of the Bill, but this amendment is unnecessary and duplicative. I hope I have persuaded the noble Lord that the codes of practice that he envisages would not help to provide the detailed guidance that employers and workers require. I thank him for raising the issue, but I hope I have persuaded him not to press those amendments.

[Lord Hunt of Wirral (Con)]

The Minister has shared with the Committee that there is an implementation plan. As we are now moving to consider each clause, the first few in particular, it would be helpful for the Committee to be made aware of the part of the implementation plan that governs each and every clause. Is she able to share it with the Committee and, if so, by when? Might we at least see a draft of the implementation plan, so that businesses across the UK know what lies ahead?

[Baroness Jones of Whitchurch (Lab)]

I know the noble Lord has already raised this, and he tempts me, but there has to be further consultation. He will understand that. Part of the legislation obviously requires further consultation to take place. We are still looking at the timescales for all this, and we obviously understand the need to provide guidance as soon as we can, but what I can say that will be reassuring to everybody concerned is that this will be a phased process; this is not a day-one process. We just need to make sure that the phasing of all this makes sense for employers so that it can be done on a proper basis and with the appropriate guidelines behind it. We are working on it, we will share it as soon as we can, and we understand the need for it, but it is not available at this time.

17:30

[Lord Fox (LD)]

My Lords, I thank all noble Lords for their contributions to this debate. The noble Baroness, Lady Carberry, may be relatively new to this House, but she is not wrong that purpose amendments are often the source of great opprobrium across your Lordships’ House—and I am afraid I am something of a serial offender in that regard. But the aim of this amendment has certainly partially been achieved, in that I think we have started the process of flushing out some of the issues.

I have a great deal of respect for the noble Baroness, Lady O’Grady, and I think she gave a very spirited speech, but I think that she gave a spirited speech to the speeches that came after hers and not to mine. If she reads, in tomorrow’s publications, the words of what I said, I think she will find that at no point did I speak against the Bill. I was seeking through this process to achieve two things from the Benches opposite. First was a recognition that there is much work to be done to bring employers into this process, and I did not hear that empathy from the Benches opposite or from the Minister. The second point on which I was seeking recognition is that a lot of this legislation is arriving late. The Minister said she would give this House an adequate time to consider it; it is already too late for it to be adequate time, because this stuff is arriving well past due date. We are not getting adequate time on the programme that we are currently getting, and there needs to be a recognition of that. If the Government want to reach across the House and support all the good things in the Bill, then they have to have some empathy about the things that are wrong with it and with the process of the delivery. That was my main purpose in this purpose amendment, and it has not achieved that purpose to date. I hope that, going forward, we can get some recognition of what is required.

On Amendments 283 and 327, I thank the noble Baroness, Lady Coffey, who I think got my point: we need an operator’s manual for the Bill. The Minister absolutely cemented the reason why we need one, because she then went on a journey across several different bits of legislation and all sorts of codes and practices and stuff. If I am sitting in the HR department of one person in a business of 12 people, I need a guidebook that takes me to the right guides and the right legislation. The information may already exist, but I do not need to go on a website trawl to find it; I need a signpost that takes me to the places that I need to know to operate this legislation when it becomes an Act. That is what Amendment 283 is seeking to achieve. If this stuff already exists, then it will not hold up the process; it is merely a question of bringing it together and saying, “You get this bit there and that bit there”. The more that can be done within a code of practice to deal with that, the easier it will be for businesses to comply, and the easier it will be to avoid a proliferation of tribunals, which I am sure no one in this House is seeking to achieve. With that, I beg leave to withdraw Amendment 1.

Amendment 1 withdrawn.

Amendment 2

Moved by

[Lord Moynihan of Chelsea]

2: Clause 1, page 2, line 8, leave out from beginning to end of line 11 on page 4

[Lord Moynihan of Chelsea (Con)]

My Lords, I rise to move Amendment 2. I apologise to noble Lords if anything in my moving of this amendment is maladroit or otherwise at fault: it is the first time I have moved an amendment, let alone a group of amendments.

Why am I suggesting that new Section 27BA be removed in its entirety? The primary reason is the onerous inflexibility that it imposes on employers, the creators of jobs. The Bill as it stands, in theory, works even for those key groups who, as has been reported widely, much prefer flexibility in their employment arrangements—to take just a few examples: students, working mothers, part-time creatives and casual workers of all stripes. It is acceptable to them because they do not have to accept the guaranteed hours that the employer is required to offer them. To them and other groups of workers, some of whom may indeed prefer to be offered guaranteed hours, the employers will be required to offer those guarantees, but, once the offer is made, the employees can accept them or not. Thus, this new section creates considerable additional flexibility on the demand side. Many people looking for jobs will find those jobs more attractive.

On the supply side, however, flexibility is enormously reduced, to be replaced by stark uncertainty for all employers, particularly for sectors such as the NHS, hospitality, retail, care work, the gig economy, delivery driving, Christmas work, warehouse work and so many more. The absolute importance of flexibility to the employer can hardly be better illustrated than in the reports on the Guido Fawkes website as to how unions and the Labour Party itself have happily offered zero-hour contracts in the past.

At Second Reading, I stated that this Bill in general will kill business across the country, serving to shrink rather than grow the economy. This unfortunate section is just one part of that but an important one. In general, as I have just discussed, on the demand side, the removal of significant elements of flexibility creates distortions in the employment market, leading to employers, in many cases, being far more reluctant to offer employment. In consequence, the level of employment will fall, not increase. For smaller businesses, just creating the offers required by this section in the first place will involve onerous costs in time and money, making the employer highly reluctant even to start the process of seeking new employees. Some of the subsections in the new section raise the likelihood, in real life, of employers doing their level best to covertly figure out which employees will be flexible and which will seek inflexible, guaranteed arrangements, and, having come to a conclusion, hiring the one who wants flexibility and not the one who does not. That destroys the whole intent of this clause. The Government might denigrate such behaviour by a small business employer, but few in the Government have ever run a business.

A further problem is that the new section envisages the employer having to go to all the lengths of creating the guaranteed-hours offer, and to present it to the candidate employee, without having any idea whether the candidate will take the offer. This imposes considerable friction and inefficiency on the economy and more unnecessary costs on the poor benighted employer.

Interestingly, I read through the several pages of this new section—quite possibly ineptly—but I cannot find anything about what happens in a hypothetical situation where an employer presents the required offer then says to the prospective employee, “Will you be wanting these guaranteed hours?” and, if the prospective employer says yes, the employer then does not make an offer of employment to them. It seems odd that I cannot find that; maybe it is there somewhere. In my view, if the ability of the employer to renege in that way after having been forced to make that offer is in fact there in the Bill, it would be a good thing. The Government may or may not agree, but, even if I were right in saying that this loophole existed in the current drafting and the Government, having been alerted to it, were to choose to close that loophole, it would just drive similar behaviour by employers underground.

The Bill is driven in great part by a belief in what is “fair” to employees, and so forth. I have seen in my short time here that “fairness” is often used in this Chamber; “outcomes” is not used so much. Whatever the Government’s view may be as to the crucial importance of fairness, with the best will in the world, the government drafters who focused on fairness will not have been able to bring to the issue anywhere near the level of seriousness as to outcomes with which a business owner facing survival or destruction for their business will view this matter.

This new section is just one component of an extensive and intrusive Bill that will, if implemented, see the UK’s economy further driven into the ground, with more and more parts of that economy and key players in it either becoming economically inactive or, as we are seeing on a daily basis, leaving the country. On Report, I imagine my party will oppose the entire Bill, but in the meantime, I state that it can be significantly enhanced by removing this new section in its entirety. I beg to move.

[Lord Wolfson of Aspley Guise (Con)]

My Lords, I rise in support of Amendment 8 in my name. I declare my interests as stated on the register, in particular my role as chief executive of Next plc, the job I have held for 24 years, which makes me the UK’s longest-serving FTSE 100 chief executive. I add that Next employs over 25,000 part-time employees—and, I hasten to add, it does not use zero-hours contracts.

I start by assuring the Minister that I have sympathy with the intentions behind this section of the Bill. Zero-hours contracts can leave employees feeling obligated to accept hours from employers, who can feel no obligation to provide work. I commend the Government’s intention to tackle this lack of reciprocity. In the Minister’s polling, I would have come out as one of those people not in favour of zero-hours contracts.

Amendment 8 would increase the Bill’s effectiveness by clarifying the distinction between zero-hours contracts and legitimate part-time contracts, because there is a world of difference between tackling potentially abusive zero-hours contracts and eliminating the flexibility that legitimate part-time contracts provide to those who need and want them. My concern is that the requirement to offer additional contract hours to those who voluntarily work extra hours will inadvertently prevent those additional hours being offered at all.

I am not exaggerating when I say that if the threshold for low-hours contracts is set too high, it will take a wrecking ball to the UK’s part-time economy. It will deprive millions of people of a valuable source of flexible income, and multiple industries of the flexibility they need to offer excellent services in sectors where demand is variable and volatile.

It is important to understand the nature of flexible part-time work. The vast majority of part-time workers provide an important supplement to their household income but are not the mainstay. They are people such as a parent whose childcare responsibilities mean they cannot work full time, students balancing their studies with their earnings, carers for elderly relatives, and those seeking to transition into retirement. What this diverse group of people has in common is that they value the guaranteed regular income their part-time contracts provide but also appreciate and value the ability, at their discretion, to add hours of work when they have more time available: for example, during university holidays, during term time for parents of school-age children, or at times when household costs rise—for example, in the run-up to Christmas.

These reciprocal arrangements benefit all involved. From a business perspective, sectors such as retail, hospitality, health and travel can maintain excellent services despite the intrinsically variable nature of demand in consumer-facing businesses. These flexible additional hours allow businesses to respond to seasonal peaks and unexpected surges in demand, and to do so in a way that offers voluntary additional hours to those who want them.

I hope this gives some sense of how important flexible part-time work is for the 8.5 million part-time employees in the UK. This flexible work will be under threat if the threshold for low-hour work is set too high in the Bill. My worry is that the Bill will make it almost impossible for businesses to offer additional voluntary hours to workers with contracts below the low-hour threshold. There are two reasons why: first, the complexity of trying to comply with the law, and secondly, the risk it creates for businesses that offer additional hours to part-time staff that they will end up with permanent and unaffordable overstaffing.

17:45

I will start with complexity. Business will have to track who should be offered extra hours—as currently drafted, pretty much every day of the year—calculate correct entitlements and then determine compliant contract offers without clear guidance as to what a compliant offer will actually be. For the company I work for, I estimate that it would be at least a year of systems work and several million pounds of cost just to develop the system needed to manage this process. Small businesses will find this process overwhelming.

It is not just the complexity of the compliance that matters; there is a more important problem. Restaurants and shops simply cannot afford to have as many people working in February as they do in December. That is a fact. They cannot take the risk that extra hours to cover seasonal peaks or summer holidays then become permanent costs for the rest of the year. Faced with the choice of managing an impossibly complex system, along with the inherent risk of having to contract staff for more hours than a business will need, we will have no choice: we will simply not be able to offer additional hours to those staff on low-hours contracts.

Consider the practical consequences. A retail business facing heightened demand at seasonal peaks will be unable to offer additional hours to its existing part-time staff—skilled staff. The only alternative will be to offer the work to additional temporary workers, depriving loyal, experienced and skilled employees of the opportunity to supplement their income at a time when they most need it. For a Government who I genuinely believe are committed to economic growth and supporting working people, surely this cannot be the intended outcome.

This amendment does not seek to undermine the Bill’s core objectives; indeed, it provides a number that at some point must be determined. By defining low-hours contracts as those requiring four hours per week—a single part-time shift—we create a clear boundary that protects vulnerable zero-hours workers while preserving valuable flexibility for those who genuinely benefit from it. Set at a reasonable level, this section of the Bill has a good chance of achieving its noble aim. Set it too high, and it will radically change the landscape of UK employment in a way that will be bad for employees and catastrophic for the service economy.

Some may argue that the threshold of four hours is too low. If the Government believe that a different threshold is more appropriate, I will welcome that discussion and debate, but that debate we must have. What is indefensible is the failure to include any threshold in the primary legislation. This is not a minor technical detail to be determined later; it is fundamental to the scope and impact of the Bill. If it is the Government’s intention to profoundly change the nature of and opportunities for part-time work in the UK, the Bill should be clear on this subject, allowing business and employees the time they will need to prepare for the change. By leaving this crucial definition to secondary legislation, Parliament is being asked to approve potentially far-reaching changes to our labour market without debate, scrutiny or consent.

I urge the Minister, if not to accept this amendment, at least to commit in Committee to including a clear definition of low-hours contracts on Report. If the low-hours threshold is set at the right level, the Bill will indeed succeed in addressing potentially exploitative practices—which, as noble Lords on the other side of the Committee have rightly pointed out, good employers want to be addressed as much as they do. The Bill can do so without dismantling the legitimate employment practices that work—for our economy, for our service industries, and, most importantly, for millions of working people across the UK. In that spirit, I commend Amendment 8 to your Lordships.

[Lord Fox (LD)]

My Lords, it is with some trepidation but some pleasure that I follow that speech. I rise to speak to Amendment 4, which is in my name, and to offer support to Amendments 7 and 15 in the name of my noble friend Lord Goddard, although he will speak to those on his own account.

Speaking on the previous group, I said that there should be a change in the polarity of the guaranteed hours offer from an obligation to offer to a more streamlined right to request. We have heard in the previous two speeches that the aim is for this offer to be made to people who want it rather than there being an obligation to make it to everybody, when we know for a fact that a large number of people who will get the offer will not want to take it up. It is unnecessary activity when there is plenty to do in business. It is a very simple principle, and I genuinely do not think it subverts the intention of the Bill, in the same way as I think the noble Lord, Lord Wolfson, was trying not to subvert the purpose of the Bill but to help it succeed while helping business at the same time. In a sense, that reflects the point I made before withdrawing Amendment 1. It is really asking the Government to have some understanding of how these things will be delivered on the ground, in the workplace. That is why the previous speech was so helpfully revealing.

I think that a large part of the early part of this Bill is designed to deal, in essence, with a number of employers who the Government have in the back of their mind as not doing the right thing and not achieving what we would all like to achieve. I understand that. Unfortunately, it is dragging the whole business programme, from microbusinesses right up to huge businesses, into a series of practices to crack those particular nuts. Later in Committee, my noble friend Lord Clement-Jones will introduce Amendment 318, which targets the sort of employer who I think the Government have in their mind as bad or exploitative. It would create, in essence, a new class of employee, the dependent contractor, which is in fact in many cases what we are starting to look at. It would sharpen the regulatory focus, particularly on some elements of gig economy employers, but avoid the heavy-handed approach that we are in danger of using with this Bill.

Amendment 4, and I think there are a couple of others that are very similar, would simply reverse that polarity to: if employees ask for it, the employer is obliged to deliver it. Some obligation on employers occasionally to remind their employees that they are entitled to ask for this would help the process.

As for the rest of the group, I will listen with interest to the noble Lord, Lord Sharpe, when he comes to his amendments. I think much of this will be addressed also when we get to the issue of freelancers and to the amendment tabled by my noble friend Lord Clement-Jones, so I imagine this is not the last time that we will have some elements of this discussion, but some sign from the Government Front Bench that they understand that something should and could be addressed in this area would be a good starting point.

[Baroness Lawlor (Con)]

My Lords, I rise to speak in support of Amendments 3, 6 and 9 in this group, tabled by my noble friend Lord Sharpe of Epsom and supported by my noble friend Lord Hunt of Wirral. I also support Amendment 8 tabled by my noble friend Lord Wolfson of Aspley Guise, but for different reasons. I will not speak on that, but I like the idea of a low-hours contract. I will speak about zero-hours contracts, because I do not believe they are getting a fair look in.

These amendments would give workers the right to request, rather than putting an obligation on employers to guarantee hours. I think they are worth while and worth supporting. In the labour market this year, there are 33.9 million people employed. Of them, 1.3 million are on zero-hours contracts. There has been an increase since 2000 of 805,000 people on this type of employment contract. This is 3.1% of employment in the UK. Most are young people in the 16 to 24 age group. This is a popular way of working; the figures speak to that. There has been far more significant an increase in this type of contract than in the overall type of working arrangements chosen by employees and their employers.

Much of the popularity lies in the flexibility on both sides. The evidence is that the majority of people on zero hours, 60%, do not want more hours, although some, 16%, do. Amendments that would allow an employee to request guaranteed hours as distinct from obliging the employer to guarantee certain hours seem more in tune with people’s wishes. Of those on zero-hours contracts, around 1 million are young people. However, 946,000 16 to 24 year-olds are not in employment, education or training; that is around 50%. Yes, people on these contracts may work fewer hours than other workers—I gather the average is around 21.8 hours a week compared with 36.5 hours for all people in employment—but is it not better that there are jobs which people want and can get, particularly young people who may not yet be in the labour market or who may have been thrown out of the labour market or left it for one of the many reasons we hear about it? I am afraid that it seems from the Government’s approach that they do not think so.

This Bill and Clause 1 must be seen in the overall context of the party opposite’s approach to labour market and economy reform. Not only is the NIC tax hike on the productive sector along with the decrease in the NIC threshold taking £24 billion out, affecting 800,000 businesses and their ability to employ people and offer opportunity to the 16 to 24 age group, but other costs have been piled high, one on top of the other, since the party opposite came to power. Of those employed in December 2024, 27.8 million were in the private sector and 6.14 million in the public sector. If employers are obliged to move to guaranteed hours, that will most likely serve to cut the number of people productively employed under these arrangements, with a corresponding decrease in output and growth. Surely these amendments speak for themselves, and a Government whose priority is to increase economic growth should accept them.

[Baroness Verma (Con)]

My Lords, I declare my interests as laid out in the register. I regret that I was unable to speak at Second Reading. As someone who has been an employer for over 40 years for various small businesses, and knowing that these amendments were coming up, I spent the weekend speaking to small and medium-sized businesses, particularly the small businesses in my home city of Leicester. All were very concerned about the impact that the Bill may have, if it becomes law, in providing a set amount of guaranteed hours.

I come from the home care sector—that is one of my businesses—which really does work on contracts in which we do not, and cannot, guarantee hours, simply because of the nature of the job. We do not know when people will require care or for how long, how long they will be in hospital for, or whatever. The hospitality sector is in exactly in the same place.

18:00

Although we all want to be great employers, enforcing things that employers will find incredibly hard to deliver will just stop employers taking people on. That will restrict the ability of those who want to work for only a few hours a week—for example, just to have a change from caring duties in their homes. The intention is right, as my noble friend Lord Wolfson said, but the outcome will be very detrimental to the business community, particularly to small businesses, which are, as we all know, the backbone of our country.

Bad employers will be bad regardless of what the Government bring in because they will find ways of circumventing the legislation that is being introduced here. There needs to be more thinking around what we want to see as greater flexibility. I firmly believe in flexible working, but I believe that should be a contract between the employer and the employee; it should not be for government to mandate what needs to be done.

[Lord Goddard of Stockport (LD)]

My Lords, I will speak to my Amendment 7 in this group, as well as my Amendment 15. I also apologise for not being able to speak at Second Reading. I am walking somewhat of a tightrope this evening. For 15 years, I was a senior shop steward for the GMB as a national negotiator. I also have my own company with 20 employees. I do not think that I will be able to cope with the ramifications of some of this legislation. Also, I have some guests up in the Public Gallery: they are small business men who employ people. Dinner could get quite difficult if I say the wrong thing in the next 10 minutes, which I hope I will not do.

My first amendment would set the initial reference period for the right to guaranteed hours to 26 weeks, to give flexibility to industries that rely on a seasonal basis for operating and employing people. It would also give greater flexibility to the labour market itself. When Members see this amendment, they automatically think of seasonal workers as fruit and veg pickers harvesting crops, but nothing could be further from the truth. Work has changed. We are now essentially a service-led economy, with no more enormous factories employing thousands of workers every day, producing goods to export across the globe, clocking in and clocking out, as I did back in the 1970s. Flexibility is the key, and work/life balance for many is crucial. The days of the nine to five are well and truly over, in my opinion, especially for small businesses. That flexibility is not only for the agricultural industries but for tourism, retail, hospitality and events—things that bind our country together.

We welcome this Bill. One could argue that it is 30 years too late; that was probably the time when unions were most under attack, when our beloved Margaret was in charge. Perhaps that was when people should have risen up, but we are where we are. However, the Bill should be proportional and reasonable; those are the two things that we would wish to persuade the Government to embrace, through not only some of our amendments but those of other parties. Reasonableness and proportionality are what we are proposing. We will support the Bill, but its architects must accept that the labour market has evolved. Flexibility for workers and protecting workers’ rights go hand in hand.

I will now speak to my Amendment 15. Other amendments in this group have rightly raised challenges regarding the right to be offered guaranteed hours. My Amendment 15 strikes a necessary balance between protecting workers and allowing flexibility for genuine short-term employment situations. This amendment would not undermine the main principles of the Government’s legislation. Instead, it would make a reasonable accommodation for short-term contracts while maintaining safeguards through proper disclosure requirements and strict time limits.

For seasonal workers, this amendment offers significant advantages. It would increase their employability, as businesses could confidently offer work during peak periods without complicated hour guarantees that extend beyond the season. Many seasonal workers prefer concentrated work periods with higher hours, allowing them to earn more money during these limited timeframes. Additionally, this flexibility would enable workers in industries such as tourism, agriculture and entertainment to secure multiple seasonal positions throughout the year, improving their overall financial stability. Many industries in our economy, including agriculture and education, are connected to seasonal events. We need this practical provision.

I urge the Minister to consider this amendment, or at the very least be cognisant of the challenges these seasonally dependent sectors face. If this legislation is designed correctly, we can arrive at a set of provisions that will protect workers while acknowledging the realities of our diverse job markets.

Finally, my noble friend Lord Fox and I met Amazon a couple of weeks ago in Portcullis House. Amazon employs 75,000 people in the UK and is not unionised. It has evolved its own democratic in-house solutions. I am not commenting on that, but it shows that, sometimes, legislation is not the only way to protect people at work, guarantee earnings and pay reasonable rates. That is the kind of bigger picture thinking that this Bill is missing.

[Lord Barber of Ainsdale (Lab)]

My Lords, this group of amendments deals with the hugely important issue of zero-hours and short-hours contracts. As the noble Baroness, Lady Lawlor, said, well over a million people in the UK work on zero-hours contracts. In sectors such as retail, it is also common for workers to have a small number of guaranteed hours but to work the equivalent of full-time hours.

These arrangements are not a win-win for worker and employer. More than eight in 10 zero-hours workers want regular hours of work. Without guaranteed hours, workers do not know whether they will be able to pay their bills or organise their caring responsibilities. The flexibility is invariably on the employer’s side. Research has shown that more than half of zero-hours contract workers have had shifts cancelled at less than 24 hours’ notice. Many experience being sent home mid shift and very few are compensated. The vast majority of those who ask for guaranteed hours are turned down, so I fear a right to request would not resolve that issue.

There is also significant evidence that employers do not use zero-hours contracts just as stopgaps but will often park workers in these insecure arrangements long term. Two-thirds of zero-hours contract workers have been with their employer for more than a year, and one in eight for more than a decade.

As well as causing financial uncertainty and disrupting workers’ private lives, this distorts workplace relations, with workers fearful of challenging inappropriate conduct in case it leads to them losing their work. Recent accounts of poor behaviour at McDonald’s branches, where zero-hours contracts are prevalent, included a 17 year-old reporting that she had been asked for sex in return for shifts. Also, when employers rely on zero-hours contracts, what incentive do they have to invest in skills? The answer is: little or none, with predictable consequences for productivity.

The Bill implements measures first developed by the Low Pay Commission, with the support of both trade union and employer-side representatives. An employer will have to offer a contract based on a worker’s normal hours of work in line with a 12-week reference period. That gives a clear indication of a worker’s usual hours while evening out peaks and troughs. Any period longer than that, such as 26 weeks, would simply allow employers to park workers on a zero-hours contract for a prolonged period.

The Bill contains powers for Ministers to specify the notice period for shifts that employers must give to workers and compensation for cancelled shifts, and these are an essential part of the package. Currently, workers on variable-hours contracts bear all the risk of any changes in demand, and they are usually low-paid workers who can ill afford the sudden changes to income.

In the House of Commons, the Bill was amended to ensure that those rights also apply to agency workers. That is crucial in order to close the loophole that could have led to employers hiring zero-hour staff by agencies and entirely subverting the intent of the legislation. I know the TUC would strongly oppose any amendment that would exempt agency workers or fixed-term contract workers on variable-hours contracts from these provisions.

Employers will still be able to put in place arrangements for coping with fluctuations in seasonal work—for instance, via fixed-term contracts. What will change is that workers will not bear alone the burden, in reduced wages, of sudden changes in demand. The current situation allows manifest injustices to take place. It is time that we level up the labour market.

[Baroness Verma (Con)]

My Lords, what will the noble Lord do when all those small businesses—I emphasise small businesses—start to close down because of this rigid approach to flexible hours?

[Lord Barber of Ainsdale (Lab)]

I say to the noble Baroness that I have more confidence in the adaptability of British businesses to cope with intelligent, progressive legislation like this to even up the labour market.

[Baroness Carberry of Muswell Hill (Lab)]

My Lords, I am sorry that I find myself disagreeing for the second time today with the noble Lord, Lord Fox, specifically on the proposition that the right to be guaranteed regular hours should be replaced by a right to request.

My noble friend Lord Barber reminded us that this proposal originally came seven years ago from the Low Pay Commission. In that room were nine commissioners, who produced a unanimous report. There were three independent labour market experts, three representatives of workers and senior representatives from the Federation of Small Businesses, the CBI and big business, and, as I say, the recommendation was unanimous. In that discussion, the Low Pay Commission considered, in the words of the noble Lord, Lord Fox, whether a right to request could operate more effectively than a guaranteed offer on the ground and in the workplace, and the conclusion was that a right to request would not be a better option. That was primarily because you would be asking workers who have the least power in the labour market—the most vulnerable workers—to assert their rights. As we have been reminded, the vast majority of those workers who at the moment request guaranteed hours are turned down.

Another problem, from my point of view, with the group of amendments that are suggesting that there should be a right to request is that they are all silent on the consequences of a denied request. That is a major problem with the propositions in the amendments. In this context, I suggest that a right to request is no effective right at all.

[Lord Hendy (Lab)]

My Lords, I have a small point on Amendments 7 and 11 to 13, which seek to extend the reference period from the current 12 weeks in the Bill to 26 weeks. Last year the Chartered Institute of Personnel and Development published some figures showing the number of workers who stayed in their job for a three-month period, which I take to be some 13 weeks rather than the 12 weeks in the Bill. Some 1.3 million workers worked for less than that period of time, meaning that under the Bill 1.3 million workers will never reach the end of the reference period in order to claim the right. The figures show that if the period were extended to 26 weeks, as the amendments propose, that would cover some 8.9% of all employees, which comes to 2.7 million workers. So the effect of those amendments would be to exclude a further 1.4 million workers from ever being covered by the reference period.

18:15

[Baroness Stowell of Beeston (Con)]

My Lords, I was not going to speak on this group but the noble Lord, Lord Barber, has painted a horrific picture of the impact of zero hours on some workers. For some people I know who have been on the receiving end of zero-hours contracts, sometimes it has been even worse. I know of people who have been required to turn up at work at 4 am for a shift and been sent home again at 5 am, so I know how bad this is. However, my noble friend Lady Verma makes a strong argument as to why just removing all the measures, which would happen by virtue of the Bill, would also have a detrimental effect.

So far, I have not heard from those on the other side a response to the argument put forward by my noble friend Lord Wolfson, which is that we have to find a way forward on this matter that addresses the employment rights issue, which the Minister has said is the purpose of this legislation, but also allows business to deliver the kind of economic growth that the Government are also saying is the purpose of the Bill.

The noble Lord, Lord Empey, is not in his place at the moment, but we have to take heed of the point that he made in the debate on the first group: we should not be in a situation where this is a stand-off. Hopefully, through some responsiveness and empathy from the Minister, we will find ourselves in a position where the Bill will not have a detrimental effect on business but will address the worst work practices, as described by the noble Lord, Lord Barber.

[Lord Fox (LD)]

My Lords, I think I am allowed to come back in Committee. I want to respond to the noble Baroness, Lady Carberry, because I probably did not articulate terribly well what I was proposing. I certainly was articulating a right to request, but I was also assuming there would be an obligation to meet that request, given certain thresholds that the noble Lord, Lord Wolfson, was talking about. It would not be an option for the employer as long as the request was within those thresholds. I suspect that is not what the noble Baroness thought I was proposing, and I just wanted to set the record straight.

[Baroness Coffey (Con)]

My Lords, I support Amendment 8. I commend my noble friend Lord Wolfson on his excellent speech, bringing the reality of employing so many people into the heart of this debate, along with the constraints and the concerns being raised, while still recognising that I understand why so many people consider casual work and zero-hour contracts to be particularly poor when people are trying to have certainty of employment over some time. I also support Amendments 7, 12 and 13—in essence, any amendment that refers to specifying the reference period in the Bill.

I say that because, when thinking of 26 weeks, I think in particular of the hospitality industry in coastal areas. There are a number of employers around the country who literally shut down their businesses, or move to a much lower level of needing people, at certain times of the year, and then, in the summer, are desperately trying to find people. We need to give flexibility. The 12 weeks simply does not recognise that, as has been referred to. It is perfectly usual for people to work at different points throughout the year, potentially in on annualised-hours contract, but varying the number of hours expected to match the demand of customers requiring a particular service. I fear that the 12 weeks does not address that sort of business.

Across the country, 2 million people work in the hospitality industry. It is one of our biggest industries, and for many families it is key to how they support their household income. For the flexibility that employers want, and—thinking of how many people lose their childcare at certain times of the year—for employees to have flexibility around their hours worked, bringing in casual staff is a key element in how employers keep those businesses going.

There is another element that needs thinking through. While I appreciate that the Government seek to reduce the number of agency and bank workers in the NHS, let us not get away from the fact that, unfortunately, many NHS trusts are actually terrible employers. A lot of people leave or reduce their permanent contracts because they simply cannot get the flexibility that they need working in the NHS. That could be for caring reasons, for all sorts of people—it does not matter whether it is men or women; people provide care to their families and to their friends. I am concerned, and I intend to discuss further with NHS Professionals how this will impact on the NHS fulfilling its expectations for people right across the country. I appreciate that it is not simply NHS Professionals; many individual trusts have their own bank. That is intended to provide flexibility based on need, and recognises that simply not everybody can work the NHS shifts expected.

Thinking of the 26 weeks or the 12 weeks, I am also concerned that, at the other end of the Corridor, 650 Members of Parliament are all individual employers. They have to sign contracts, which are provided, but when people are ill or go on maternity leave, MPs can and do take people on through certain term contracts. I am concerned that there will be unintended consequences for the provision of services. As a real example, if you had to guarantee hours beyond when the employee came back, you could end up in a situation that you simply could not manage.

It is for those reasons that we need to think very carefully about the reference period when we are considering the different employment situations that small employers find themselves in, as well as the large sectors, such as hospitality and retail, which have already been discussed.

[Lord Sharpe of Epsom (Con)]

My Lords, Amendments 3, 6 and 17 stand in my name and that of my noble friend Lord Hunt. Before turning to the detail, I would like to frame the debate in its proper context.

At the heart of this issue lies the question of incentives. Much of the discussion around zero-hours contracts rightly concerns the security and well-being of workers. We must not lose sight of the fact that only a relatively small proportion of the workforce is employed on such contracts, or in other forms of temporary work. Many of these individuals are young people—as my noble friend Lady Lawlor illustrated in her very detailed speech—who are starting out in their careers. Others are disabled people, who may be able to work only a limited number of hours due to their personal circumstances. If we make the regulatory environment too rigid, we inadvertently create a disincentive to hire precisely these groups. We reduce the number of vacancies, reduce opportunities and end up harming those we most wish to support. Good intentions do not alone lead to good results. It is the incentives that lead to results.

I thank my noble friend Lord Moynihan and the noble Lords, Lord Fox and Lord Goddard, for their contributions in this group, and I will come on to others. My noble friend Lord Moynihan made a compelling argument to leave out this part of the clause altogether, because it is simply unworkable in its current form. I look forward to hearing what the Minister has to say in response.

I turn to the specifics of my amendments. Job security is vital, and there can be no disagreement on that point, but we have to recognise that guaranteed-hours contracts are not always practical or appropriate across all sectors of the economy. The principle that we wish to uphold is simple: autonomy. Workers themselves are best placed to judge their own circumstances and to decide whether a guaranteed-hours contract would suit their needs.

Research from the Chartered Institute of Personnel and Development, published in its report on zero-hours contracts, found that workers on such contracts often report a better work-life balance and higher well-being compared with other workers. This is an important reminder that flexibility, when genuinely chosen, can be empowering rather than exploitative.

Not every worker wants a rigid schedule. Young people, parents with caring responsibilities and disabled people may actively prefer the flexibility that variable hours allow. A one-size-fits-all approach simply does not reflect the realities of the modern labour market. Sectors such as retail, hospitality and tourism, and other seasonal industries, are heavily dependent on flexible staffing to meet seasonal demand. It is these very sectors that offer the vital entry-level opportunities to workers who might otherwise struggle to find employment.

Despite the Government’s understandable ambition to improve labour market fairness, the Bill as currently drafted risks reducing that flexibility rather than enhancing it. The automatic obligation placed upon businesses to offer guaranteed-hours contracts once certain thresholds are met would impose significant and disproportionate administrative burdens, even when the worker involved may have no desire to change their current arrangements.

The problem is particularly acute for larger employers, such as national retailers, as we have heard from my noble friend Lord Wolfson, who delivered an expert speech. They would be forced into a continual cycle of recalculations and offers, simply because an employee’s working patterns have shifted slightly. As my noble friend Lady Verma explained, that affects small businesses as well. In practice, firms would face a daily or weekly obligation to offer a new contract based on changing patterns, resulting in huge and unnecessary administrative costs. This would not only create inefficiency but would discourage businesses offering overtime and additional work voluntarily, thereby reducing opportunities for those who value flexibility.

The amendments I propose take a different approach. Instead of an automatic right to be offered a guaranteed-hours contracts, we propose a right to request a guaranteed-hours contract. It entirely respects the spirit of the Government’s intentions. As the noble Lord, Lord Fox, has already explained, it would impose the same the obligations on employers as the Government’s Bill. This would preserve the choice for workers, empowering them to seek greater stability when they wish, but it would avoid imposing blanket obligations on employers that may lead to perverse outcomes. The Government’s current drafting, with an automatic right to guaranteed hours, risks creating a bureaucracy that neither workers nor businesses have asked for.

On the subject of businesses, it is worth referring to the letter received from five employers’ organisations. For reference, those are Make UK, the CBI, the IoD, the Federation of Small Business and the British Chambers of Commerce. They say in that letter:

“Not every job can be made compatible with every possible need. This reform means businesses incur admin costs whenever an employee works variable hours. The result is that firms are discouraged from offering variable hours even when the flexibility is requested by workers, including voluntary overtime. The cost associated with administering and calculating contract offers on a rolling basis whenever staff work additional hours is also disproportionate and provides no clear benefit to workers”.


I could not have put it better myself.

There has been some reference on the other side, by the noble Baroness, Lady Carberry, to the Low Pay Commission, which met seven years ago. That ignores the fact that, over the last seven years, working practices more generally through the economy—whether on flexible-hours contracts or not—have changed very dramatically, partly as a consequence of the pandemic. I note that the FSB has now signed the letter which includes the quote I have just delivered, so it has clearly changed its mind.

I recognise that there may be an even simpler and more effective alternative to the right to request, which would be an automatic offer of a guaranteed-hours contract combined with the right for the worker to opt out if they so wish, so Amendment 17 introduces a worker opt-out mechanism. A qualifying worker may opt out of receiving a guaranteed-hours contract provided that the employer has provided clear written information about the guaranteed-hours system, the worker has given written notice in a prescribed form, and the employer reminds the worker at regular intervals, at least every six months, that they can opt back in at any time. Under that model, every eligible worker would be enrolled on to a guaranteed-hours contract after the reference period by default.

However, those workers who genuinely value the flexibility of their zero-hours arrangement—and there are many, particularly, as we have already discussed, young people, carers and so on—would have the right to decline the offer by providing written notice. This approach would strike a better balance, because it would ensure that guaranteed hours are the norm unless the worker themselves chooses otherwise, thereby protecting workers who might otherwise feel pressured not to request more security. Equally, it would avoid the unnecessary administrative burden on employers of offering contracts that in many cases would be rejected. We would be sparing businesses the cost and disruption of a process that delivers little practical benefit where flexibility is mutually valued by both employer and employee. It would ensure that the choice remains a real and continuing one, recognising that workers’ needs and circumstances evolve.

18:30

The Government have rightly said that they seek a labour market that is flexible and fair and works for everyone. These amendments deliver precisely that balanced, two-sided flexibility, preserving opportunity and autonomy for workers while sparing businesses disproportionate costs that could otherwise lead to fewer jobs and fewer opportunities.

My noble friend Lord Wolfson spoke with real authority and expertise on Amendment 8. I have to say, before I get into the meat of Amendment 8, that I wonder whether the noble Lord, Lord Barber, listened to what my noble friend said, because he pointed out, and I think I am quoting him correctly, that:

“Restaurants and shops simply cannot afford to have as many people working in February as they do in December”.

That is the motivating factor behind the extension of the reference periods: to iron out seasonal quirks.

For all the Government’s talk about providing clarity for businesses through these reforms, it is remarkable that the Bill as drafted fails to define “low hours” at all, despite introducing a raft of measures that depend on this very concept. This omission is not a minor drafting point; it goes to the heart of the Bill’s workability. It is crucial that the threshold for what constitutes a low-hours contract is set appropriately. If the threshold is set too high, we risk severely constraining businesses’ ability to adjust staffing levels in response to short-term changes in demand. This will increase administrative complexity, bring more workers unnecessarily into the scope of guaranteed-hours provisions and in doing so undermine operational flexibility, which is vital in sectors such as retail, hospitality, holiday parks and many others, as we have heard.

Conversely, if the threshold is set too low, particularly when combined with an excessively long reference period, businesses will face a constant churn of reassessing and amending employment contracts. This administrative burden would divert resources away from core operations, disrupt workforce stability and erode the very flexibility needed to respond to seasonal peaks, staff turnover and fluctuating consumer demand, particularly in the convenience and service sectors. Moreover, setting the threshold poorly could have serious unintended consequences for workers. There is a real risk that if the rules around low hours are unclear or overly restrictive, employers may be discouraged from offering low-hours roles altogether. That could shut out individuals from the workforce: those who, for very legitimate reasons, such as caring responsibilities, disabilities or study, may be able to work only for a limited number of hours per week. We should not inadvertently deny these workers opportunities to participate in the labour market.

In light of these concerns, we have tabled an amendment to define low hours clearly and appropriately:

“Clause 1, page 2, line 30, leave out from ‘for’ to end of line 32 and insert ‘four hours or fewer per week (“the minimum number of hours”)’”.

We believe that a four-hour threshold strikes the right balance, ensuring that truly minimal-hours arrangements are captured without sweeping in a wide range of normal part-time work or creating unnecessary bureaucracy. In legislation as significant as this, as we discussed at some length on the first group, clarity is not optional. Leaving concepts such as “low hours” undefined creates uncertainty for employers and workers alike. It opens the door to confusion and disputes, and ultimately undermines the stated aims of the legislation. I urge the Government to reflect carefully on this amendment. If their aim is truly to provide clarity and certainty for businesses and workers, there can surely be no good reason to leave this important definition to be sorted out later by regulations or, worse, by litigation.

I will speak briefly to Amendments 31 and 32 but firmly to my amendment to Schedule 1. This amendment seeks to remove the Secretary of State’s power to make regulations transferring the duty to offer a guaranteed-hours contract from the hirer to another party involved in the supply of agency workers. This power is both unnecessary and, I argue, undesirable. It risks creating confusion and uncertainty about where legal responsibility properly lies. In any employment or engagement relationship, it is vital that workers, whether employees, agency workers or freelancers, have clarity about who is responsible for their rights and protections. The Bill as currently drafted would allow the Secretary of State, through secondary legislation, to move the duty away from the hirer to some other party in the supply chain—perhaps an agency, perhaps another intermediary. This raises serious practical concerns.

First, the hirer is the party who exercises day-to-day control over the worker’s activities. It is the hirer who sets the hours, determines the workload and understands the nature of the work the individual is undertaking. The hirer is therefore best placed to judge whether the worker meets the qualifying conditions for a guaranteed-hours contract and to make a meaningful offer. Passing this duty on to another party, who may have no direct operational relationship with the worker, risks unfairness to the worker and administrative chaos for the employer.

Secondly, we must remember that many agency supply chains, particularly in sectors such as logistics, health and social care and construction, are already complex. Introducing additional legal uncertainty about who bears responsibility will not improve outcomes for workers. Instead, it risks creating disputes, legal challenges and a compliance minefield that ultimately harms both workers and businesses.

The Government may argue that the regulation-making power is simply a backstop or a flexibility mechanism, but such broad and loosely defined powers should not be handed over lightly, especially when we are talking about the fundamental rights and protections of working people. If there is a clear principle here—that those who control the work should be responsible for offering security of hours where appropriate—we should put that principle into the Bill, not delegate it out through regulations after the fact. Therefore, I urge the Government to consider this provision. Let us provide clarity and certainty for businesses and workers by ensuring that the duty to offer guaranteed hours remains firmly with the hirer, the party best placed to discharge it fairly and effectively.

Finally, I thank the noble Lord, Lord Goddard, for his Amendment 15. This amendment addresses an important gap in the current draft of the Bill, particularly for workers in industries such as hospitality, retail and other seasonal or temporary employment areas where fluctuating demand and short-term contracts are the norm. I believe it is vital to recognise that many workers in these sectors actually value the flexibility that comes with non-guaranteed hours. For some, the opportunity to accept irregular work, tailored to their availability and lifestyle, is not just desirable but essential. For students, people looking for part-time work and those balancing other commitments, this flexibility is often more important than the certainty of a fixed number of hours. I am particularly curious to hear the Minister’s thoughts on this amendment, as it seems to me to offer a practical and reasonable solution to the challenges posed by the Bill’s current provisions. The introduction of flexibility, in a way that empowers both the employer and the employee, can only enhance the working arrangements available to those in temporary or short-term roles.

[Baroness Jones of Whitchurch (Lab)]

My Lords, I thank the noble Lords, Lord Sharpe of Epsom, Lord Goddard of Stockport, Lord Moynihan of Chelsea and Lord Parkinson of Whitley Bay, for tabling their amendments to the clauses on zero-hours contracts. I will begin with Amendments 7, 11 and 12, which seek to amend Clause 1 to set the initial reference period for the right to guaranteed hours at 26 weeks. They would also remove the power to define the length of the initial reference period in regulations, or would render it obsolete. I say to the noble Lords that the length of the initial reference period will be set out in regulations, and of course we will consult further on this issue, but it is expected to be 12 weeks—that is the figure we are currently thinking about.

The noble Lord, Lord Goddard, urged that the measures be proportionate and reasonable. We feel that our proposals as they stand are exactly that. I am grateful to my noble friend Lord Hendy for reminding us that 1.3 million people will never reach the reference period if it is 26 weeks, as their employment will not be that long. There is a very good reason why we should not extend the period.

We believe that 12 weeks is the appropriate length. It would be long enough to establish the hours that the workers regularly work while allowing qualifying workers to be offered guaranteed hours reasonably soon after they start a job, or after the right to guaranteed hours comes into effect. If the initial reference period was set at 26 weeks, workers in precarious and unpredictable work would have to wait six months to access their right to guaranteed hours. We believe this is too long in the current labour market circumstances.

Similarly, Amendment 13 would specify in the Bill that the subsequent reference period for the right to guaranteed hours is 26 weeks. The length and frequency of the subsequent reference periods will be set out in regulations. Subsequent reference periods may well be of a different length and frequency from the initial reference period. This is because, unlike the initial reference period, subsequent reference periods are not qualifying periods. Therefore, a different balance needs to be considered. It is necessary to set out both the initial reference period and subsequent period lengths in regulations to allow changes to reference periods to be made, for example in response to emerging evidence about how this novel right is working in practice or in light of evolving working practices. As I said, we intend to consult on the length and frequency of subsequent reference periods.

Amendment 9 seeks to amend Clause 1 to take workers on fixed-term contracts out of scope of the right to guaranteed hours. This could lead to avoidance behaviour, whereby employers move workers from open-ended zero-hours contracts to fixed-term zero-hours contracts. We also believe that workers on limited-term contracts lasting longer than the duration of the reference period should be entitled to a guaranteed-hours offer. This is because such workers may experience one-sided flexibility in the same way as those on permanent contracts.

I emphasise that the right to guaranteed hours will not prevent employers using limited-term contracts. Employers can make a guaranteed-hours offer resulting in a limited-term contract if it is reasonable for that contract to be of a limited term. For example, as has been mentioned several times, it might be reasonable to provide a worker with a limited-term contract only to cover the increase in retail demand during the Christmas period. If a limited-term contract is shorter than the initial reference period, then the worker would likely not qualify for a guaranteed-hours offer, but that would depend on the conditions as to regularity or number and whether it was reasonable for the contract to be of a limited term.

Amendment 8 seeks to amend Clause 1 to set the hours threshold in the Bill at a maximum of four hours a week. It would also remove the power to set the hours threshold in regulations. I listened carefully to the arguments, in particular from the noble Lord, Lord Wolfson, on the interests of part-time workers, but under this amendment workers who are guaranteed more than four hours per week would not be eligible for the right to guaranteed hours.

The hours threshold will be crucial to determining how many workers are included in scope of the right to guaranteed hours. It is partly intended to act as an anti-avoidance measure, preventing employers avoiding the duty to offer guaranteed hours by moving a worker on to a contract guaranteeing only a very small number of hours. Setting it to only four or fewer hours per week would mean, for example, that any worker with only five hours guaranteed per week would fall out of scope of the new provisions, even though they may experience unpredictable hours and income in the same way as other zero-hours workers. Similarly, if we were to set the threshold too high, it could have unintended consequences and impact the overtime arrangements of workers who already have sufficient predictability and security.

Additionally, given the novelty of these provisions, it is important that the Government retain the flexibility to amend the threshold in future, for example in the light of evolving work practices. I reassure the noble Lord, Lord Wolfson, and others that we intend to consult on the hours threshold, including the issues raised today, as part of the consultation. Including the threshold in the Bill at this stage would remove the opportunity to have that consultation and for unions, employers and workers to feed in their views.

18:45

[Lord Wolfson of Aspley Guise (Con)]

Would the Minister accept that having a maximum number in the Bill would be enormously important so that business can prepare for this? The number of hours set as the threshold will determine the number of employees who need to be dealt with. If it is 3% of our workforce, that will be one thing; if it is 50%, that will be another. While I accept that the Government need flexibility, would they at least consider setting a maximum number of hours in the Bill so that business can start to prepare now, as we will need to do if we are to have the systems in place in one year’s time to implement this Bill?

[Baroness Jones of Whitchurch (Lab)]

As we have said when other people have suggested fixed rates, we need to avoid unintended consequences or the gaming of those arrangements. I am inclined at the moment to resist what the noble Lord has said, but we can consider that further as the Bill progresses.

[Baroness Verma (Con)]

My Lords, in adult social care or care, you are at the mercy of people going into hospital or passing away and those hours suddenly becoming contracted. Where are the safeguards for the employers at that point? There is no guarantee that people will come out of hospital. You cannot wish more hours to happen; you are at the mercy of people wanting care. I do not understand how this will work in the care sector, so it would be really helpful to understand the Government’s thinking on that.

[Baroness Jones of Whitchurch (Lab)]

The same thing would apply as for seasonal workers, in the sense of that unpredictability. The Bill allows seasonal work to continue; fixed-term contracts can be an effective way for an employer to meet temporary or seasonal demands for work—

[Baroness Verma (Con)]

Forgive me; I thank the Minister for her patience. Seasonal work is incredibly different from care, which is about the elements around you. We cannot predict when somebody will fall sick, go into hospital for long or short periods or pass away. It is a very different discussion point. I want us to be mindful, in thinking about the overall picture, of how certain sectors fit in.

[Baroness Jones of Whitchurch (Lab)]

Obviously, we want all sectors to have the right facilities for them. I am not sure whether the noble Baroness is talking about home care or the care home sector. Perhaps we can have a conversation outside; I will attempt to set up a meeting with her, because I do not want to be misconstrued.

Amendments 10 and 31 seek to amend the Bill so that agency workers do not have a right to guaranteed hours. We are determined to ensure that agency workers who seek more certainty of hours and security of income are protected. Some workers choose agency work because they value flexibility, but they can also experience one-sided flexibility in the same way as other workers. Failing to include agency workers in the scope of the Bill could also see employers shift to using more agency workers to avoid the zero-hours measures altogether. As with other eligible workers, agency workers who prefer the flexibility that agency work provides would be free to turn down the guaranteed-hours offer.

After public consultation, the Government brought forward amendments to the Employment Rights Bill so that hirers, agencies and agency workers are clear where responsibilities will rest in relation to the new rights. However, we recognise that some measures may need to apply in a different way to agency workers because of the tripartite relationship between the end hirer, the employment agency and the agency workers. The Government will consult further and continue to work in partnership with employers’ organisations, the recruitment sector and trade unions to develop the detail of regulations in a way that avoids unintended consequences for employment agencies and hirers.

Amendment 32 seeks to remove from the Bill the power to place the duty to make a guaranteed-hours offer on the work-finding agency, or another party involved in the supply or payment of an agency worker instead of the hirer. We included this power in line with the responses to the Government’s consultation on applying zero-hours contract measures to agency workers. Responses from stakeholders were split about whether this new duty should lie between the hirer, the agency or another party in the supply chain. We are clear that, as a default, the hirer should be responsible for making the offers of guaranteed hours because they are best placed to forecast and manage the flow of future work.

However, given the unique and complex nature of agency worker relationships, which vary in different parts of the economy, the power is required to allow the Government flexibility to determine specific cases in which the responsibility to offer guaranteed hours should not sit with the hirer. For instance, this could be the case with vulnerable individual hirers who receive or procure care from agencies—I am not sure whether that is the point to which the noble Baroness referred earlier—where instead the agency might be in a better position to offer guaranteed hours. We are aware of the importance of this power and the impact these regulations could have on agency workers, hirers, agencies and others in the supply chain. For this reason, this power will be subject to the affirmative procedure, ensuring both Houses of Parliament get further opportunity to debate its use.

[Baroness Neville-Rolfe (Con)]

Can the Minister talk us through the agency question a little bit more? If you need emergency care, you go to an agency and it finds you someone, then you pay a very large sum of money for agency care. Is the Minister suggesting that in future, and considering the ups and downs, the agencies will have to guarantee those who are involved in emergency care these very high salaries, which they will have to pay, even if they do not find clients? Is that how she thinks it will work out in practice? Is it enough to say it is going to go into regulations, when this is so important for the care sector and emergency care?

[Baroness Jones of Whitchurch (Lab)]

I was making the point that this has complications because there are some people who are individual hirers. Some people get benefits to employ people directly, so it is not always done through a third party. That is why we need to have clearer rules about this. I am happy to write to noble Lords or explain this in a little bit more detail if that helps.

[Baroness Verma (Con)]

The problem with direct payments is that you are making the person who receives the payment into the employer. They are usually individuals who are looking after their own care; they will not have the facilities to go through the quagmire of rules and regulations. I say this just to give some assistance.

[Baroness Jones of Whitchurch (Lab)]

I take that point. I was attempting to explain in my description, which I obviously need to develop a little bit more, that we understood some of those issues and are trying to find a way through it.

Amendments 3, 4 and 6 seek to change the model for the right to guaranteed hours from a right to be offered to a right to request. We have debated this at some length. These amendments would mean that a qualifying worker experiencing one-sided flexibility would need to make a request to their employer to access their right to guaranteed hours. Noble Lords underestimate the imbalance of powers that employees in this circumstance face. The noble Baroness, Lady Lawlor, mentioned young people, which is the group that is likely to be the most intimidated by having to request guaranteed hours. Therefore, we are attempting to make sure that these rights are balanced in a proper and more effective way.

I am grateful to my noble friend Lady Carberry for reminding us that the Low Pay Commission also looked at a right to request and, understandably, rejected it for exactly that reason. It understood that the people in those circumstances had the least power in the labour market and would therefore, quite rightly, feel intimidated about coming forward. She also raised the issue of what happens if the request is denied. I know the noble Lord, Lord Fox, attempted to address that, but I do not know that the amendments necessarily do so. The noble Lord, Lord Sharpe, says that employment has changed since those days. I would say that employment has become even more unpredictable and unreliable. Nothing that the Low Pay Commission said—or indeed that I said—addresses the potential exploitation which the commission identified. There is an imbalance, and it is very difficult for people to come forward and make that request; that is why we are insistent that it is done in the way that we have suggested.

After receiving an offer, the workers would then be able decide whether to accept it, based on its specific terms. That would empower the worker to decide for themselves, having seen the offer on the table. This addresses the point that some people do want to work flexible hours, and we understand that.

Amendment 15 would allow workers on limited-term contracts of four months or less to voluntarily waive their right to guaranteed hours. We believe that workers should be able to retain the flexibility of a zero-hours contract or arrangement if they wish, which is why those who are offered guaranteed hours will be able to turn them down and remain on their current contract or arrangement if they wish. This amendment would add an additional opt-out mechanism for workers that could create needless confusion for both employers and workers.

Amendment 17 would provide workers with the ability to opt out of receiving guaranteed-hours offers. We understand the importance of workers being able to retain the flexibility of zero-hours contracts or arrangements if they wish, which is why those receiving a guaranteed-hours offer will be able to turn it down. However, to ensure that all qualifying workers will benefit from the legislation, all workers should be able to receive a guaranteed-hours offer. We want to ensure that employers and workers are starting from a position of equal bargaining power. Therefore, through the Bill we have allowed for employers and unions to collectively agree to opt out of the zero-hours contract measure, if they agree. Unions can make these deals based on their knowledge of the industry and a holistic view of what is best for the workers. We feel it is more appropriate than individual workers opting out of receiving offers. After receiving an offer, qualifying workers would then be able to decide whether to accept, based on their individual circumstances.

Finally, Amendment 2 would remove from the Bill the right for qualifying workers to be offered guaranteed hours. We think that all employers should be required to offer their qualifying workers guaranteed hours, as this is the best way of addressing one-sided flexibility in the workplace and ensuring that jobs provide a baseline of security and predictability.

Without guaranteed hours, workers do not have any form of certainty as to their earnings, making it difficult to apply for credit or a mortgage, to rent a flat, to plan for major events, or even to manage their day-to-day life expenses. As I have previously iterated, those who are offered guaranteed hours will be able to turn them down and remain on a current contract or arrangement if they wish. We believe that this is the right balance. I therefore hope that I have persuaded noble Lords not to press their amendments.

[Lord Sharpe of Epsom (Con)]

The Minister is relying a great deal on the fabled consultation that we are going to have. Can we have some idea of when that consultation is likely to take place? Can I suggest that it perhaps takes place before we get to Report, because it will iron out a great many of these arguments? The Minister asserted that some businesses have supported the 12-week reference period. Can she say which ones?

[Baroness Jones of Whitchurch (Lab)]

The Bill sets out, in a number of ways, that there will be regulations that will be consulted upon. This goes back to the issue of when that consultation will take place, but there is a framework for that set out in the Bill which should cover that point.

[Noble Lords]

And the second point?

[Baroness Jones of Whitchurch (Lab)]

As I said, I read out the names of a number of businesses that are broadly supportive, but we have not gone through clause by clause asking which particular pieces of the Bill they are supporting. However, businesses that are household names are in support of the Bill.

[Baroness Verma (Con)]

My Lords, very quickly, large businesses may be able to be supportive. Could the Minister name any small business that she has come across that supports this?

[Baroness Jones of Whitchurch (Lab)]

Again, there is a list of SMEs that support the basis of the Bill. I do not think it is going to help anybody if we go back and ask them for the specifics of whether they agree with each clause. The fact is that they agree with the direction of travel and a number of businesses, big and small, are already carrying out many of these practices, so it will not be unusual to them. This is about good employment practice and I am sure a lot of businesses will support it.

19:00

[Lord Moynihan of Chelsea (Con)]

My Lords, the debate on this group of amendments has been invigorating and useful. I thank all those noble Lords, in particular, the Minister, the noble Baroness, Lady Jones, who have contributed to it.

My noble friend Lord Wolfson of Aspley Guise commended the intention of the Bill to counter the ill effects of zero-hours contracts, which his company does not use. I honour his intent and indeed his extraordinary contributions to the nation’s employment and its economy in general. I note that he tended to agree with my proposal overall, in respect of the dysfunctionality of this clause. I would be happy if the wording of the clause, if it is incorporated into the Bill, incorporated his wording but removed the rest of the clause from the Bill.

The noble Lord, Lord Fox, who does not appear to be in his place, spoke to Amendment 4, which, in the case that Section 27BA is retained in the Bill, switches the origination of a flexible-hours discussion from employer to employee. Clearly, this is a more sound and flexible approach, although I of course cannot go along with his later statement that he meant there to be an obligation on the employer to provide what the employee demanded.

My noble friend Lady Lawlor spoke movingly on the many things this Government have already done to depress economic activity and said—better than I—how this clause would make things much worse. She added the crucial point that the ill that this clause purports to address is in fact a good, much preferred by the majority of those working flexible hours.

My noble friend Lady Verma spoke with the authority of one who has great experience as an employer. She implored the Government to get their nose out of what should be a more relaxed and less formal relationship between employers and employees. The Government should pay her heed. My noble friend Lady Coffey spoke forensically about the wreckage this clause would create in the hospitality industry and also, very worryingly, in the NHS. Over and again, we heard noble Lords speak about the need for flexibility; this clause creates the opposite.

My noble friend Lord Sharpe of Epsom pointed particularly to the appalling outcomes this clause will create on the numbers of youth unemployed. Earlier, my noble friend Lady Meyer mentioned French youth unemployment at 19.2%. Have the Government any clue how that occurred? They did not intend that to happen, obviously. They do not want one in five of their youth unemployed who are seeking work. It occurred from precisely the sort of legislation that the Government are proposing to introduce here. Do we really want our youth unemployment to be one in five of those wanting to be employed? That is what I mean by outcomes rather than this notional and very generic idea of fairness—because it is not fair, either.

The Minister confirmed that the reference period will be in the legislation. This is welcome news, but it would have been better were it in the draft legislation right now, so that we could debate it right now—the time that we are supposed to be debating it. The Minister showed an impressive ability to wade through the latest iteration of what is an extraordinarily complex proposed set of rules, but creating and explaining such rules misses the entire point. This Government believe that “We know best” and therefore that if we create this perfect machine, these wonderful processes, all will be well. They do not know best; the market knows best and the market should be left to itself to sort out most of these matters. I urge the Minister to heed the words of the noble Lord, Lord Wolfson, and the noble Baroness, Lady Verma, to provide clarity as soon as possible and to provide flexibility in the way that they have just urged her.

The Minister sought to provide clarity on agency workers. With respect, her words did not reflect reality. Let us take as one random example the interim management sector. These individuals take jobs to fill gaps that suddenly appear in a company, to fill the period before a permanent replacement can be found. The appointment of an interim manager may last a day or it may last a year, depending entirely on events that will only be happening in the future. To guarantee hours for these individuals is, quite frankly, entirely impossible. That is just one of many different sectors and different possible examples, as the noble Baronesses, Lady Neville-Rolfe and Lady Verma, made clear just now.

I remain convinced that the outcome of this clause, if passed into law, will be significantly fewer—not more—jobs. Having said which, there are of course other ways of improving this clause if it is not removed entirely. These are ways that my noble friends and the noble Lord, Lord Fox, have offered with their own amendments, the vast majority of which I have indicated that I agree with, not least after listening to the experienced voices of business from these Benches.

To conclude, the removal of flexibility from employers cannot possibly be a good thing. The more employment flexibility that is created in an economy, the more creative are the ways that entrepreneurial employers find to grow the economy, to create more jobs, to improve living standards and indeed to provide the Government with more tax revenues to meet the depressingly larger and larger commitments that this Government continue to take on. Having said all of which, I reserve the right to bring this amendment back on Report. In the meantime, I beg leave to withdraw it.

Amendment 2 withdrawn.

Amendments 3 and 4 not moved.

Amendment 5

Moved by

[Baroness Noakes]

5: Clause 1, page 2, line 9, after “employer” insert “, other than a small and micro business,”
Member’s explanatory statement
This amendment, along with another in the name of Baroness Noakes, takes small and micro businesses (and similarly sized undertakings) out of the ambit of Part 1 of the Bill.

[Baroness Noakes (Con)]

My Lords, I rise to move Amendment 5 and will speak also to Amendment 124 in this group. I thank the noble Lords, Lord Londesborough and Lord Vaux of Harrowden for adding their names to the amendments. The noble Lord, Lord Vaux of Harrowden, was hoping that we would be progressing rather more rapidly during Committee. Unfortunately, he has now had to leave us, but he has assured me that he remains fully committed to the principles behind these amendments.

Amendment 5 seeks to amend new Section 27BA of the Employment Rights Act 1996 as inserted by Clause 1 of this Bill so that the new right to be offered guaranteed hours will not apply to small and micro businesses. Small and micro businesses should not be dragged into any of the changes made in this part of the Bill, which is why I tabled the more extensive exclusion in Amendment 124. The Public Bill Office would not let me table that amendment at the beginning of Part 1, which is what I wanted to do, but it suggested Amendment 5 as a mechanism to enable us to have an early debate on the impact of the Bill on small and micro businesses. It is such an important issue that it has already arisen in the speeches of several noble Lords on the other two groups that we have debated, so now is a good time to have an initial debate on small businesses.

My blanket Part 1 exclusion—in Amendment 124 —applies to small and micro businesses. I have used the definitions in the Small Business, Enterprise and Employment Act 2015, so that a “small business” is one with fewer than 50 staff and a “micro business” has fewer than 10 staff. The 2015 Act also encompasses other types of undertaking, so small charities et cetera would come under that definition.

I have some considerable sympathy for Amendment 282 in the names of my noble friends Lord Sharpe of Epsom and Lord Hunt of Wirral, which is also in this group. It is similar to mine, but it instead also covers medium-sized companies, which are those with between 50 and 250 employees. I believe that the greatest harms done by this Bill will be to those at the smaller end of the scale, because they have the fewest management resources to cope with the kinds of burdens that the Bill will inflict on large swathes of our business community. I am not opposed to my noble friends’ amendment, but if we could see where the biggest harm would be, it would be at the very smallest end.

According to the latest Department for Business and Trade statistics, there were 5.5 million businesses in total, employing nearly 28 million employees. The micro-business segment—those with up to 10 employees —accounts for 95% of the total number of businesses, 5.2 million. However, 4 million of them do not have any employees. The rest—1.2 million businesses—have over 4 million employees between them. So we are talking about businesses with an average size of three employees; these are very small operations.

The 220,000 businesses that have between 10 and 50 employees have 4.3 million employees in total. The average for this category—small businesses—is around 20 employees, so it is still a very small operation. The rest, large and medium-sized businesses, account for only a bit over 1% of the business population—that is the number of businesses—but they employ 53% of the workforce.

If my amendment—to take Part 1 out of scope for small and micro businesses—is accepted, it would still apply to private sector businesses employing around 15 million employees, plus, of course, the 6 million employed in the public sector. It would not apply to around 1.4 million businesses with around 8.3 million employees.

The Government’s economic analysis cites a figure of 13 million employees who would be excluded for small and micro businesses, but that seems to include the 4 million businesses with no employees, which I have assumed are things such as sole traders, who are not actually employed. If the Minister responding to the amendment has any better analysis of the numbers, I would be grateful if he would write to me, because I find them a little confusing.

The Government’s assessment of small and micro businesses shows that five of the nine largest measures and two of the four medium-sized measures have a disproportionate impact on small and micro businesses. I am genuinely astonished that the Government would even contemplate bringing forward measures which are so disproportionately skewed in terms of harm to small and micro businesses. Those that have the biggest impact are found largely in Part 1 of the Bill.

Several noble Lords have already raised the problems that the Bill will create for those small businesses, and at Second Reading a number of noble Lords spoke to exactly the same issues. At the weekend, I went back to the closing speech of the Minister, the noble Baroness, Lady Jones of Whitchurch, at Second Reading. She did not even refer to the problems for this important sector of the economy; she talked about business more generally, but not about the small and micro businesses, or even the medium-sized businesses, that will be impacted.

19:15

The Government’s economic analysis is pretty superficial; it does not give very much meat on the bone for the impact on small businesses. The Government say that they do not want to create a two-tier workforce and that they believe that exempting smaller businesses from the provisions of the Bill would reduce incentives for businesses to grow. I do not believe that either of those reasons has any substance to them.

Let us start with the claim about a two-tier workforce. The Minister will be aware that we already have all sorts of tiering in our workforce. Perhaps the biggest divide is between public sector and private sector workers, where those in the public sector get pretty generous defined benefit pensions, which became unaffordable for the majority of the private sector over the last 30 years. Even where the private sector does provide pensions, there is a lot of variation in whether employers provide the minimum required under automatic enrolment or more generous contributions to defined contribution schemes. There are also other divides: people who work for large corporations typically get maternity and paternity rights and sick pay in excess of the statutory minimum, or they may get access to benefits such as private healthcare which smaller companies simply cannot afford. We should be in no doubt that tiering is alive and well throughout our labour market.

Turning to incentives to grow businesses, I fear that the Government’s almost complete lack of business knowledge shows through. I acknowledge that cliff edges or thresholds can affect business behaviour, and that can affect growth. The most egregious example is probably the VAT threshold of £90,000, which actively discourages very small businesses from even bothering to grow. At a much higher level, we can see threshold effects in bank capital which positively discourage smaller banks from wanting to grow to be medium-sized banks. However, I am far from clear that there would be a significant threshold impact if we exempted small and micro businesses from Part 1, with all its bureaucracy and regulation. The vast majority of the businesses employing those 8.3 million people will be operating nowhere near the threshold of 50 employees. Most of them—almost all of them—could double or treble in size without hitting the threshold. The very small number that might be drawing up plans to take them past the 50-employee mark would of course factor in extra regulatory costs, such as complying with this employment Bill. However, if this Bill were the factor that stopped a business from growing through the 50-employee threshold, the chances are that the business plan itself would be a weak one.

This Bill will have massive impacts on millions of small businesses which are nowhere near the 50-employee threshold. If that does not negatively impact growth, it will be a miracle. I also particularly worry about scale-ups and start-ups, but, fortunately, the noble Lord, Lord Londesborough, who knows far more about them than me, will—I hope—be speaking about them in due course. In the meantime, I beg to move.

[Lord Londesborough (CB)]

My Lords, I rise to speak to Amendments 5 and 124 in the name of the noble Baroness, Lady Noakes, to which I have readily added my name.

Before I get stuck into the detail, I should perhaps offer an apology for comments that I made at Second Reading, when I compared this Bill to a giant vampire squid sucking the life out of our economy. Although this metaphor generated considerable media coverage, it prompted several eagle-eyed members of the public to point out that the vampire squid is no bloodsucker as it eats only dead organic material. It turns out that I inadvertently picked the only mollusc that does not eat live prey, so I stand corrected and apologise to the marine life community for this oversight.

As far as the Bill goes, I make no apology. I will focus on Part 1 and its impact on our all-important start-ups and scale-ups. We have 35,000 scale-ups in the UK, contributing £1.6 trillion to the UK economy annually; that is more than 50% of the value of the whole of the UK’s SME economy, despite these companies making up less than 1% of the SME population. They are crucial because they represent the most dynamic element of our economic growth: they create jobs at the fastest rate, promote their staff at the fastest rate and attract significant investment.

I should declare my interests as set out in the register: I chair, advise and invest in a range of start-ups and scale-ups, and it is their lived experience that informs my comments, along with my own years as a micro, small and medium-sized employer.

Working for scale-ups and start-ups is both demanding and rewarding. Entry-level jobs tend to pay less than average and have considerably fewer benefits than average, but progress more rapidly in terms of pay, bonuses and promotion, with such employees often becoming equity stakeholders. Scale-ups thrive on flexibility and a performance culture—something that Part 1 of this Bill seems to ignore.

Another important group sitting within the small and micro sector is family businesses employing fewer than 50 staff, the majority of them having fewer than 10 employees. These businesses often have only one member of staff covering each responsibility, and their HR has to be covered by the owner or the senior manager. Subjecting these groups to the full battery of clauses and schedules in Part 1 of this Bill is, I believe, disproportionate, costly, distracting and growth-sapping.

On the subject of costs, the Bill’s impact assessment suggests a burden of an extra £5 million per annum for all employers and admits that this will disproportionately fall on small and micro-businesses, as the noble Baroness, Lady Noakes, just outlined. However, that is a crude estimate and appears to have been drawn very narrowly. It fails to assess the invisible costs of complicated recruitment, performance reviews, dismissals and the general administration of HR. The smaller the business, the greater the distraction from core activities, tying up key leadership and management time in less productive areas. In plain language, this means lost output.

Recruitment is critical for small and micro-businesses and is set to become far riskier in an already difficult climate. Part 1 of this Bill threatens to complicate probation, performance reviews and dismissal for fair cause. Day one rights and dismissal constraints will deter risk-taking and reduce employment opportunities at entry and graduate levels, especially in middle and senior management. It will encourage employers to hold on to bad hires and to promote mediocre or underqualified ones.

Flexible working, shift changes and guaranteed hours have already been covered in the previous group, so I will not duplicate, other than to say that this is a special problem for small and micro-businesses, especially those that rely on part-time workers and shift patterns. The hospitality sector is a prime example.

I shall finish by countering the Government’s expected response to this group of amendments: that there should be no exemptions as these new employment rights should apply universally across the economy, and that we should not create a two-tier workforce. Although I understand the thrust of that argument, it does not reflect the real employment market. SMBs, as we have already heard, cannot compete with large businesses when it comes to pay scales, training, promotion opportunities and a whole range of benefits, including pensions. Indeed, most have no HR function, let alone department, and that reflects their size.

However, what SMBs do have to offer is a friendly working environment; greater flexibility than average; a stakeholder culture, whether that is reflected in equity or in identity; and the fact that every role in their organisation is a critical part of the business, leading to strong employee loyalty and identification. Applying to small and micro-businesses consisting of five or 10 staff the very same employment rights that are applied to multinationals such as Amazon, which employs 75,000 people in this country, will do serious damage to our jobs market. That is why I wholeheartedly endorse these amendments.

[Viscount Trenchard (Con)]

My Lords, I rise to speak briefly in support of Amendments 5 and 124, so ably spoken to by my noble friend Lady Noakes, and well supported by the noble Lord, Lord Londesborough. I also support Amendment 282, which I expect will be addressed by my noble friend Lord Sharpe or my noble friend Lord Hunt.

The impact on the smallest businesses will, as stated by my noble friend Lady Noakes, be great. The cost to business of implementing the Bill could be as much as £5 billion, according to the noble Baroness, Lady Jones of Whitchurch. She said that this would be a transfer to the lowest-paid segment of the workforce. I do not think that that would be the result. My noble friends’ amendments would mitigate the stifling effect on small businesses that the Bill will have.

Small and micro-businesses are already struggling with the additional costs of the increases in employers’ national insurance contributions introduced two weeks ago. It is small and micro-businesses that most need flexibility in the nature of the employment models they can offer workers. Putting such businesses into a straitjacket will remove employment opportunities for many of those who prefer flexible-hours contracts, and even for the many young people who actually quite like zero-hours contracts, or who would at least rather that such opportunities existed than not—which will otherwise be the consequence of enacting the Bill. My noble friend Lady Lawlor spoke convincingly on this matter in the previous group.

Part 1 of the Bill will prevent many small businesses taking the risks inherent in adding a new business line or expanding the size of their operations. I hope that the Minister will carefully consider the strong arguments made for the exemption of small and micro-businesses from these measures. In that way, the Government might achieve their declared aim of transferring value to the lowest-paid segment of the workforce.

19:30

[Lord Leigh of Hurley (Con)]

My Lords, it is a great honour to follow my noble friend Lady Noakes and the noble Lord, Lord Londesborough. My noble friend and I worked on the Small Business, Enterprise and Employment Act, which I am pleased has provided good use here on in. Of course, she has a most distinguished business career, not just, as we all know, in very large financial services companies but as my president at the Institute of Chartered Accountants, where she interacted with many small and medium-sized businesses. The noble Lord, Lord Londesborough, and I spent the turn of the year discussing the Bill and its ramifications.

I speak as someone who takes a particular interest in SMEs, for reasons I will explain. I am, of course, in full support of this small group of amendments—as are, I think, all business representative bodies. The FSB, which is the UK’s largest employer group, has said that this will

“wreak havoc on our already fragile economy”.

We have had survey after survey: 1,270 companies were surveyed. Two-thirds of them said that they will curb hiring, and one-third said that they would reduce staff as a result of this Bill. The aforementioned Chartered Institute of Personnel and Development discovered that 25% of its members will be considering lay-offs as a direct result of this Bill. The Institute of Directors called it

“a sledgehammer to crack a nut.”

As I mentioned, I am particularly close to the SME sector, not least because, in 1989, I started a small business with one partner and one assistant. I should therefore declare an interest that I still own a chunk of shares in that small business, which, when we started, was called Cavendish Corporate Finance and is now Cavendish plc. At this point I normally take a pot-shot at the Labour Front Bench as not having any business experience to talk of—certainly not in the other place—but I have to be much more deferential in this Chamber, not least because the noble Lord, Lord Leong, two years after I started Cavendish Corporate Finance, started Cavendish Publishing, except, of course, that he had much greater success than me. According to Wikipedia, in his first year made £250,000 profit, which is very impressive, because in my first year I lost money, so I have to be suitably deferential. None the less, I am sure the noble Lord will remember those formative years of starting a business, when one was focused on nothing else but that business. Clearly, we desperately need people to do the same as the noble Lord and me: to take the risk, start a business, have a go and then employ people.

The decision to employ a person is a very big one. It is the toughest decision for the first person, but it is still tough for the second, third, fourth and fifth. As it happens, we now have 220 people employed at Cavendish, but it took a long time to get there and we had to merge with a number of other companies so to do. For many years my small business would have been covered by my noble friend Lady Noakes’s exemption, and it would need it because, to take on people in a small business, you are recruiting someone not just to do a job of work but to join your culture and your aspirations, and to fit in. Sometimes it works and sometimes it does not, and when it does not you have to make difficult decisions to make changes. The fact that we are now allowed to let people go relatively easily encourages people such as me to take a chance and employ someone where I would not otherwise do so.

I am very worried that this Bill will lead to a reduction in business growth and, in particular, in employment. Its main burdens will be borne by small businesses. I think the Minister cited five companies that she said were broadly supportive of the Bill. All but one were larger companies, and one was actually the Co-op—I am not sure that entirely counts. Another was IKEA, but I would be very grateful if the Minister could cite the support from IKEA, because I cannot find it. The SME sector realises that the financial burden that the Bill imposes of some £5 billion will largely fall on it, and it is very worried. So the first issue is financial.

The second issue is operational. SMEs do not have an HR department. They simply do not have the facility to wade through this enormous amount of legislation about how they are supposed to treat their staff. The only way round it is, of course, to deploy an agency at great expense to advise and consult every time there is any HR issue, and it is just another cost for businesses which are, for the most part, feeling pretty fragile, and much more fragile after the horrendous NIC increases that are being imposed on them.

The third hammer blow is that those business just will not hire. They just will not take the risk of hiring new employees, which will, of course, restrict their growth, because the only way a business can grow is to recruit new people with fresh blood, fresh ideas and fresh reach. It is impossible for a business to grow without making hires.

Fourthly, the Bill will make businesses risk averse. The Institute of Chartered Accountants in England and Wales has specifically said that this will make businesses risk averse in all their decisions, because of the extra risks that are imposed on those businesses by the Bill because of the costs and burdens they have to undertake.

Lastly, the fifth problem with the Bill is the lack of consultation. It has been rushed through to meet the 100-day deadline and, as a result, there has not been proper consultation and we are wading through a vast number of amendments that we are trying to get our heads round.

For all those reasons, one accepts that the Bill is in the manifesto and that it has to happen—it is in, in many ways appropriate that it does—but please can we leave out the SME businesses that will struggle with this Bill? Maybe we can bring it in later, suitably amended, but not now.

[Baroness Neville-Rolfe (Con)]

My Lords, I think the Government would do themselves a great deal of good if they made special arrangements for small business. They are well precedented: we have the VAT threshold, the employment allowance and the small business audit, and it would be a powerful addition to their forthcoming White Paper or Green Paper on small businesses.

Everyone knows that I often speak in favour of small business and have very good relations with the Federation of Small Businesses, so I obviously support the expert trio of my noble friend Lady Noakes and the noble Lords, Lord Londesborough and Lord Vaux of Harrowden, who we should listen to. To put it simply, either we need some special arrangements for small businesses, or—and it might be even better—we need changes to the Bill to remove the bureaucratic provisions that are going to get in the way of success; to look at the lack of flexibility and remedy it; and to avoid the inevitable huge increase in tribunal cases and the overuse of delegated powers. I encourage the Minister to think creatively in this important area.

[Baroness Verma (Con)]

My Lords, I also support these amendments from my noble friend and other noble Lords. It would be really helpful if the Government took a hard look at this. I spoke to coffee shop owners over the weekend, and to a very small business that is trying to manufacture British products in this country. They are all very worried about how they are going to cope with the burdens that will be placed on them.

It may well be useful for the Government to go back and look at whether they can make an exception for small businesses up to a certain number of employees—maybe three, maybe five and at least for those that have no ability other than to reach out and pay for very expensive advice, which often they cannot afford. These small businesses are at the heart of our high streets in local communities. They add value and are familiar to customers. The very small business—the micro-business, but particularly businesses with 10 employees or less—should be exempt from this Bill.

[Lord Ashcombe (Con)]

My Lords, it a pleasure to support my noble friend Lady Noakes and the noble Lords, Lord Londesborough and Lord Vaux of Harrowden, on Amendment 5 and their other amendment.

Small businesses and microbusinesses form a vital component of our national economy. These enterprises, while often agile and innovative, are particularly vulnerable to regulatory and financial pressures. Like all businesses—I should declare that I work for a very large American insurance broker—these enterprises have had to absorb the recent increases in the national minimum wage and adapt to the changes in national insurance contributions legislation. However, unlike larger businesses, they often lack the structural resilience and financial buffer to absorb such changes with ease. The impact on them is therefore disproportionate. This amendment proposes a sensible and measured opt-out for SMEs from additional obligations stemming from the proposed changes to zero-hours contracts—specifically, the move towards tightly prescribed guaranteed hours. As the Government’s own impact assessment acknowledges, these reforms are likely to have a disproportionate cost on small businesses and microbusinesses. I stress that this is not speculation but is drawn directly from the Government’s impact analysis.

Small businesses and microbusinesses span a wide range of sectors, but many are embedded within the UK as world-renowned creative industries that bring global acclaim and substantial economic benefit to this country. Many are driven by the energy, passion and commitment of individual entrepreneurs and small teams. I have had the privilege of speaking with several such business owners during the course of this Bill, and a recurring concern has emerged: the smaller the business, the harder it is to digest and manage such legislative change. Some have gone so far as to tell me that they are considering closing their operations altogether. That is a deeply troubling prospect. It is no exaggeration to say that measures such as these, if applied without nuance, risk undermining the very entrepreneurial spirit that we so often celebrate in this House.

There seems to be a regrettable habit forming on the Government Benches of legislating in ways that hinder rather than help the economic engines of this country. This approach is not conducive to national growth. It is not conducive to competitiveness. It is not conducive to job creation. It is certainly not conducive to easing the burden on the Exchequer—quite the opposite. Driving small businesses to closure will reduce tax receipts and increase demand for state support. We need to encourage investment, not chase it away.

Can the Minister explain clearly why this legislation must apply so rigidly to a critical sector of our economy? Why must we impose further burdens on the very businesses that we rely on so much for our innovation, employment and growth? Is there no room for proportionality and no scope for recognising the distinct challenges that are faced by the smallest enterprises? What I have said applies, to a great extent, to the middle-sized companies mentioned in Amendment 282, tabled by my noble friends Lord Sharpe and Lord Hunt of Wirral.

I leave your Lordships with a quote from the Spirit of Law by Montesquieu:

“Commerce … wanders across the earth, flees from where it is oppressed, and remains where it is left to breathe”.

[Baroness Lawlor (Con)]

My Lords, I support the amendments tabled by my noble friend Lady Noakes and the other amendments in this group. I do so as an employer, and my interests are declared in the register.

I am a very small employer, in a not-for-profit company. I am therefore one of the microbusinesses to which my noble friend Lady Noakes has referred—those which have zero to nine employees. I echo what the noble Lord, Lord Londesborough, said: smaller businesses will find it very difficult to afford the costs which this Bill will impose upon them.

Small businesses and the employers in them are not the adversaries of those we take on. Many small businesses, including a number in the digital sector, are start-ups—some started in that garage, about which Hermann Hauser once spoke. They build up their teams and develop by commitment. Each member of the team taken on is an asset—not just an expensive potential asset but a cost to begin with, in time and in the compliance of dealing with every member of the workforce. Such businesses do not have large HR teams or sometimes any HR teams. There is a cost in the salary and in trying to keep the employee by continuing to raise the salary as often as one can. There is also a cost in the investment of time.

19:45

Noble Lords have spoken about the culture of the small business. A great deal of time is spent on training, inducting, encouraging, sharing enthusiasms and building on a new employee’s talents and skills—all of which must be found and nurtured; they do not grow on trees. This is particularly so with young people entering the workplace for the first time, even the most able graduates. To induct each employee costs money. It costs a salary, it is a potential investment, and it costs time. An employer needs to build on the relationship. The way to do that, and to keep that investment and make it productive, is to move as a market economy moves—to reflect salary levels, to reflect pay and conditions, and to do what can be done to afford the best workforce you can to develop your product and compete.

If the measures in this Bill go through, many small businesses and microbusinesses will not be able to do what others have done—namely, grow rapidly and develop exponentially—as we have heard. There is a very strong case for exempting small businesses, particularly micro-businesses, as has been proposed. I hope that the Government will listen.

[Baroness Coffey (Con)]

My Lords, I too support Amendment 5. Without small businesses growing and taking on people, we will not achieve the outcomes that the Government have set for getting more people into work. I referred in a debate on an earlier group to the 80% target.

I am conscious of what happened with the Kickstart scheme. We particularly encouraged small businesses to participate in the scheme and to consider the opportunity of an extra pair of hands, giving them the confidence that they could grow their business and employ people, often for the first time. That was an important step in thinking about how to minimise risk in the first instance. A considerable proportion of people were offered permanent jobs as a consequence.

That first step of taking people on is often the hardest for many small businesses and microbusinesses. That is why I would be even happier if this amendment was altered on Report to make it solely for microbusinesses, not just small businesses, as that first step is one of the hardest.

We already have thresholds in many other employment practices. We already have thresholds about things that connect with pension contributions, and other financial thresholds have been referred to. But this is about having the courage to take on people. You may decide to expand your services, whether in the care sector or elsewhere, as you do not want to let clients down, but you need to make sure that you can guarantee quality support to your clients. That is one of those uncertain things when we discuss a wide range of the amendments to Part 1 of the Bill.

There are other opportunities where I will raise the issues impacting small businesses in the Bill, but overall we should take the successful approach of previous Governments, including Labour Governments, of keeping small businesses out of this area. The impact assessments talked about mitigations they plan, but there is no mention of what those mitigations may actually be, and that level of uncertainty is one of the things that will hold back growth, which we are led to believe is the number one mission of this Government. I fear that without some of the exemptions, we will not see that growth coming in our UK industry.

[Lord de Clifford (CB)]

I rise in support of the gist of these amendments with regard to small businesses. I declare my interest as the owner of a medium-sized business with 130 employees, so it would not apply to me. But the burden on small businesses, certainly of Part 1, will seriously restrict their ability to grow and have the courage to take that step of employing people. I certainly think that micro-businesses should be exempted from a lot of these burdens. As we go through Part 1, we need to keep those micro-businesses in our thoughts.

[Baroness Kramer (LD)]

My Lords, I am channelling the noble Lord, Lord Fox, who has been called away. He, on behalf of these Benches, cannot accept a two- tier workplace in regard to employment rights, which obviously form the content of this Bill, so we will not be supporting these amendments.

[Lord Hunt of Wirral (Con)]

My Lords, I am very grateful to the noble Baroness, Lady Kramer, for setting out the position so clearly, but I am particularly grateful to my noble friend Lady Noakes because, as a result of her moving the key Amendment 5, we have had a remarkably positive debate about what I believe is the lifeblood of the UK economy, namely the small and medium-sized business sector. The noble Lord, Lord Londesborough, of course, is a great authority on all this, and it was good to hear from the noble Lord, Lord de Clifford, as well.

When we reflect for a moment on the speeches that have been made in this debate—apart from that of the noble Baroness, Lady Kramer—we have not had any contributions from the Government Benches. But, as my noble friend Lord Leigh of Hurley pointed out, the most important contribution will be made by someone who really does understand. The noble Lord, Lord Leong, knows all about small businesses, and I am thrilled and delighted that he is summing up the debate because he understands what so many of my colleagues have tried to point out. The noble Baroness, Lady Neville-Rolfe, said that bureaucracy can get in the way of success. Look at the amount of rules and regulations and bureaucracy.

I agreed with all my noble friends, including my noble friend Lord Ashcombe when he pleaded for a sensible and measured response. We all want to see bereavement leave—all good employers allow for bereavement leave. We want to see rights established very clearly, but my noble friend Lady Verma pointed out that if we impose them on the small and medium-sized sector in the way that my noble friend Lady Noakes outlined, three, four or five employees will suddenly have to deal with all this legislation.

Let us remind ourselves of the importance of small businesses. As several of my colleagues pointed out, at the start of last year there were 5.45 million small businesses with up to 49 employees, making up a staggering 99.2% of the total business population in the UK. We are talking about a massive sector, and therefore we have to worry and concern ourselves about the effect of the Bill. As the Federation of Small Businesses put it, in its current form the Bill risks becoming nothing short of a disaster for small and micro-businesses.

The noble Baroness from the Liberal Democrat Benches spoke about a two-tier workforce system, which those Benches object to. But as my noble friend Lady Noakes pointed out, we do in fact have tiering alive and well throughout the UK economy. It is not trying to impose one size fits all; it is recognising that over 99% of businesses in this country are small and cannot possibly cope with the burden of this Bill.

It just so happens that I already have a quotation from the noble Lord, Lord Leong, which I readily move to. We have heard from the Government on multiple occasions that they are committed to supporting SMEs and ensuring that they are not burdened with excessive costs or red tape. The noble Lord, Lord Leong, made a very important point during the passage of the Product Regulation and Metrology Bill:

“we do not want to burden SMEs with additional regulatory or financial cost”.—[Official Report, 25/11/24; col. GC 138.]

What wise words: we would love to hear those words from him again tonight. He will realise that the reality of this Bill is starkly different. The only thing this Bill seems to do for SMEs is to burden them with additional regulatory and financial costs. It is incredibly difficult to reconcile the Government’s stated intentions with the actual impact this legislation will have on small and micro-businesses across the country.

I know that my noble friend Lord Sharpe of Epsom and I have Amendment 282 in this group, but I do not want to go into it. I was taking the old Companies Act definition, and I do not need to go into all the findings of the Bolton committee and all those who have sought to define this, because I think my noble friends have done a great deal to define small and medium-sized enterprises.

We just need to know what the Government intend to do to alleviate the burden on small and micro-businesses. The impact assessment has highlighted the significant challenges that these businesses will face in implementing these reforms, and at the moment there is no adequate plan to support them.

I would like to ask the Minister these questions. First, will he please outline what the three main expected benefits of this Bill will be for small and micro-businesses? Secondly, how will the Government support small businesses in complying with the provisions of this legislation? What kind of guidance, training and resources will be made available to ensure that these businesses can navigate the new regulations without inadvertently falling foul of the law? Finally, can the Minister provide an assessment of the risk of unintentional non-compliance by small businesses? What steps are the Government taking to mitigate this risk and ensure that these businesses are not unduly penalised as a result of a lack of guidance in the legislation?

The Government have not consulted the small and medium-sized sector. If they have, can we please have a great deal more detail on what their conclusions were? If they have not consulted, will they please do so now?

[Lord in Waiting/Government Whip (Lord Leong) (Lab)]

My Lords, I thank all noble Lords who contributed to this group of amendments with such passion. The noble Baroness, Lady Noakes, together with the noble Lords, Lord Sharpe and Lord Hunt, tabled several amendments—Amendments 5, 124 and 282—that seek to remove micro-businesses and small and medium-sized businesses from the scope of large sections of the Bill.

20:00

First, it would not be right or fair to exclude these small businesses and the people who work for them from some of these rights and entitlements. That would be the result of Amendment 282 and I am sure this is not what most noble Lords want. This amendment would, for example, disapply the changes that we are making to strengthen statutory sick pay, such as removing the waiting period. Our changes to the SSP waiting period stand to benefit employers through increased productivity, all while reassuring employees that they should not feel forced to struggle through work when they are unwell.

Similarly, Amendments 5 and 124 together seek to take small and micro-businesses, as defined in the Small Business, Enterprise and Employment Act 2015 mentioned by the noble Baroness, Lady Noakes, out of the scope of Part 1 of the Bill. Doing so would result in employees of these businesses unnecessarily missing out on important protections against sexual harassment, as well as day-one rights against unfair dismissal. I will come to day-one rights in a moment. The noble Baroness’s amendments would also prevent employees of small business and micro-businesses accessing the new entitlement to bereavement leave that we are establishing.

The noble Lord, Lord Hunt, asked what government support is available to SMEs. All I can say is that the Government are offering massive support. We are committed to supporting micro-businesses, and small and medium-sized businesses, which are the backbone of the UK’s economy. Many noble Lords have stated that and I totally agree that they are engines of growth.

The Department for Business and Trade already provides existing offers that small businesses may wish to access. This includes the business support service, the network of local growth hubs across England and the Help to Grow: Management scheme, which helps owners of small businesses to improve their leadership, performance and management capabilities. Financial support is also available through the government-backed British Business Bank, which aims to improve access to finance to help businesses to invest and grow.

I will touch on implementation. We are committed to extensive consultation. I know that this word has been used many times this evening, but we want to consult as widely and broadly as possible to ensure that this legislation works for employees and employers of all shapes and sizes alike. We anticipate this meaning that the majority of reforms will take effect no earlier than 2026 and be done in a way that means that time-pressed SMEs will not be overburdened. We know that the more that we can say about the future implementation timing of these measures, the better employers, workers and trade unions will be able to plan and prepare for them. The expert and detailed insights and feedback gained from consultation so far have been invaluable in getting this legislation right.

At this juncture, I declare an interest. I thank the noble Lord, Lord Leigh, for sharing my publishing career with colleagues here. I have had a career in business of more than 45 years, founding and cofounding several business ventures. I learned a lasting truth: thriving teams drive lasting success. I remember, with emotion, the pride when I hired my first employee and, later, my first hundred and then my first thousand. Each was a milestone on a journey built by people. Without these people, I would not be here and would not have run those successful businesses.

Before my appointment to the Government, I had the privilege of mentoring, advising and serving as a non-executive director to start-ups, scale-ups and publicly listed companies. A lesson from my late father, also a businessperson, guided me throughout. He said, “Happy staff, healthy profits”. That principle has been my compass through both prosperous and very challenging times.

People are the heartbeat of every single enterprise. When we value and invest in them, business and society flourish, so I really look forward to bringing this passion and experience to this Bill.

Business groups often default to warning about economic damage whenever stronger worker protections are proposed. I do not need to remind noble Lords that we saw this with the minimum wage in the late 1990s and with shared parental leave more recently. In hindsight, many of those reforms had either neutral or positive effects on growth and employment. I also gently remind noble Lords, with respect, that, by framing the Bill as an economic catastrophe, business lobbies are deflecting from the more basic truth that certain business models, especially those heavily dependent on insecure, low-wage labour, might have to adapt or change if the law passes.

Before I conclude, I will answer some of the questions asked by various noble Lords. The noble Baroness, Lady Noakes, asked about the analysis of micro-businesses. According to the latest Department for Business and Trade business population estimates, 9 million employees, which is almost 40% of the whole private sector, work in small businesses and micro-businesses. There are around 124,000 people working for a business of one employee excluding owners and partners, while there are around 275,000 people working for such businesses if owners and partners are included.

The noble Lord, Lord Leigh, asked about IKEA. IKEA is very supportive of the Government’s plan to make work pay. It issued a statement on 1 April this year supporting the increase to the national minimum wage, as part of the Government’s agenda to make work pay. This underscores business’s support for the Government’s approach. There are obviously clear evidence-based benefits from tackling such issues.

[Lord Leigh of Hurley (Con)]

With respect, the statement that was issued on April Fools’ Day seems to be in support of the minimum wage, not of the specific clauses in the Bill.

[Lord Leong (Lab)]

I thank the noble Lord for that, but IKEA is pretty supportive of the overall intention of the Bill and of the national minimum wage, which is obviously outside the scope of the Bill, such as what we are doing on zero-hours contracts, other short-term contracts and all that. I will write to the noble Lord with further details on the various clauses that it supports.

Various noble Lords asked about the impact assessment. The benefits of the Bill that were published by the TUC show that even modest gains from reforms to workers’ rights will benefit the UK economy by some £13 billion. Opposing this, the impact assessment says that the costs to business would be some £5 billion or 0.4% of employment costs. The benefit is huge, and economists have done research on this.

I cannot agree more with the noble Lord, Lord Londesborough, who says that start-ups and scale-ups definitely generate employment. It is absolutely right that we have to support them and I strongly believe that the Bill does support them.

Various noble Lords mentioned day-one rights and difficulty in recruiting employees. Remember that, when you run a small business, yes, it is very competitive to employ your first employee: sometimes you have to compete with the big companies in matching salaries or even benefits. I believe passionately that the Bill puts SMEs on a level playing field with large companies, where they can offer the basic benefits in the Bill.

Sometimes we asked: why are we excluding SMEs because it is so difficult for employers to recruit, and why should employees in SMEs not get day-one rights? My answer is: why not? Why should they not get day-one rights? As I said, they are the people who work for the owners, for the owners to make the profit. Without them, the owners will not have a business, so it is very important that they are supported and I believe strongly that good businesses provide fantastic support to their employees.

[Lord Ashcombe (Con)]

My Lords, I am not sure that it is the difficulty in recruiting that is the real problem for small and micro businesses; I think it is the fear of recruiting. That is a really different point.

[Lord Leong (Lab)]

I thank the noble Lord for that. I might turn that around and say that, if I am looking for a job, I have a choice of big or small companies. I am taking a chance and a risk working for a very small company. I am not sure whether that company will last. That risk works two ways. I strongly believe that most people work for companies not because of what the company does but because they look at the owner or the founders and whether they want to work with such people. At the end of the day, the employees will also be taking a chance on the employer.

[Baroness Verma (Con)]

My Lords, there is a huge difference between a large business—and its culture and the ability to respond to all the new burdens that will be placed on it—and a small business. The Minister himself said that a happy business and happy employees add to a good bottom line. The problem is that, if an employer is so burdened by so many things to comply with because it is a small employer, that happiness is soon going to disappear. All I think that all noble Lords around the House are asking is that we ease the burdens for small and micro-businesses by removing not the rights but just the burdens.

[Lord Leong (Lab)]

I thank the noble Baroness for that. There are other additional responsibilities, not only in terms of HR. A company that sets up needs to have IT support and payroll support. How many SMEs have their own IT department or payroll department, let alone an HR department? There will be big businesses that will be providing services to support SMEs. The whole argument is about responsibility: basically, when you set up a business, you have all these responsibilities, and this is part of those responsibilities.

[Baroness Verma (Con)]

My Lords, I do not want to labour the point but, if the Minister were to speak to the small businesses that people like us are speaking to, I think they would really argue that these are huge implications for them.

[Lord Leong (Lab)]

I thank the noble Baroness. I will not hold the House for too long, because I think the dinner break is coming up, but I will obviously meet up with her to talk further on this.

To conclude, the Government believe that having an entitlement to fair, flexible and secure working should not be reserved for those people who work for large companies. It is fundamental that our “make work pay” reforms, including those in this Bill, apply across all employers. Any exceptions to this provision based on the size of the business would create a two-tier labour market, with some workers facing fewer rights, entitlements and protections. This would reduce the talent pool from which SMEs could attract employees, as I mentioned earlier. This in turn would lead to an uneven playing field between employers of different sizes and reduced incentives for small businesses to grow. I therefore ask the noble Lord, Lord Sharpe, to withdraw Amendment 282 and the noble Baroness, Lady Noakes, to withdraw Amendments 5 and 124.

20:15

[Baroness Noakes (Con)]

My Lords, I think the Minister will find that the only amendment that can be withdrawn at the moment is Amendment 5. The others have not been reached on the Marshalled List.

I thank all noble Lords who have taken part: the noble Lords, Lord Londesborough and Lord de Clifford, on the Cross Benches, and all my noble friends who have spoken in this debate. Between them, they have communicated the very special issues that arise for smaller businesses right at the beginning of their life, when those early decisions are made about taking people on as they grow, and the risks and opportunities that come thereafter. I do not think that the Minister has begun really to internalise all the additional impositions that the Bill will place on that group of people.

I have a couple of small points. The Government’s economic analysis says that there are 13 million employees in small and micro businesses. I may not have been listening carefully to what the Minister said in response to my question on the numbers, but I did not hear him mention 13 million. I am hoping that I can get an analysis of where that 13 million comes from in due course. That is probably the most straightforward of the questions that arise.

The important thing here is that small and micro-businesses are very prevalent in our communities and involve really small numbers of people in their businesses, and it is a question of understanding what effect the additional imposition of the rights that are being conveyed in the Bill will have on their businesses. Small businesses, as the noble Lord said, know that they are about people and that their whole success or failure depends on the people they get and the people that they can develop to grow with their business. But they also need significant flexibilities because, when you are that small, you need to be able to cope with the situations that arise in relation to those small numbers.

I do not think any small businesses are trying to get out of treating their employees with respect and developing them as suits their particular business, but it appears that the Government feel that you can impose the measures such as those in the Bill across the whole of the business community and just rest on platitudes such as, “Oh, well, the direct costs on business are going to be outweighed by the productivity gain”. That productivity gain is not peer-reviewed research; there is no evidence that there is a causative link between giving extra employment rights and getting any productivity. That has not been examined in detail, so it is wrong to keep asserting that the Bill will result in that.

But, importantly, the issue is what is relevant to different categories of business. I and my noble friends, and my colleagues on the Cross Benches, have been trying to convey the particular issues that small businesses encounter and need to be protected from. I had rather hoped that the noble Lord, Lord Leong, with his background, would have understood that and would have understood the need for those small businesses to have some degree of understanding from the Government Benches and not be told, “Well, of course they have to have payroll and IT; they’ve just got to go and get all those things”. We are talking about the wealth-creating segment of our economy. Not everyone is going to be growing fast, but some of them are, and some of them are going to be growing a lot. If we harm those, we harm the economic potential of our country, and that is what we have been trying to argue.

I am sorry that the Government are not in listening mode today. I am hopeful that they might be prepared to listen further, especially if they genuinely engage with the representative bodies that represent the smaller end of the business scale, because I believe that the Bill needs to take some account of the special circumstances in which small and micro-businesses find themselves. But obviously, today I will withdraw Amendment 5.

Amendment 5 withdrawn.

Amendments 6 to 13 not moved.

House resumed. Committee to begin again not before 9 pm.