Fair Work Agency: Small and Micro Businesses

Wednesday 17th December 2025 Lords Chamber

Question

15:17

Asked by

[Lord Sharpe of Epsom]

To ask His Majesty’s Government what assessment they have made of the potential impact of the proposed Fair Work Agency on small and micro businesses.

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

My Lords, this Government recognise the vital contribution that small and micro-businesses make to our economy. The Fair Work Agency will provide better support to the majority of businesses that want to do right by their staff to help them comply with the law. Assessing how best to support small businesses will be core to the Fair Work Agency. That is why we are putting business expertise at the heart of the agency through its advisory board.

[Lord Sharpe of Epsom (Con)]

My Lords, I am grateful to the Minister for his Answer, but small businesses continue to raise concerns about the Government’s one-size-fits-all approach to labour market policy. Can the Minister assure the House that in designing the structure of the Fair Work Agency, proper account will be taken of businesses with small or no HR departments?

[Lord Leong (Lab)]

The noble Lord is absolutely right to highlight this issue, and I welcome his continued engagement on it. The agency will provide straightforward, sector-specific guidance written with small and micro-businesses in mind. The requirements are not new—minimum wage, holiday pay and sick pay already apply. When changes are made, SMEs will have clearer instructions, simpler routes to advice and a single enforcement body—the Fair Work Agency—rather than several other bodies that currently exist. We will work closely with representative bodies to ensure that small employers receive the practical help they need.

[Lord Carter of Haslemere (CB)]

My Lords, the Fair Work Agency and the Secretary of State are legally one and the same entity. Given the extent of enforcement and police powers which the agency will enjoy, will the service level agreement, which I assume will be agreed between the Secretary of State and the agency, ensure that the agency has full operational independence from the Secretary of State?

[Lord Leong (Lab)]

The noble Lord is absolutely right. The Fair Work Agency will be set up as an executive agency independent of the Secretary of State. However, it will have to report to the Secretary of State for its actions and enforcement. It will bring the four current enforcement units together into a single unit that all businesses should be able to address, and it will simplify the whole issue.

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

My Lords, many businesses of all sizes will welcome the simplification that the establishment of the Fair Work Agency represents in terms of the enforcement regime, but does the Minister share my concern about the spread of bogus self-employment through a range of sectors, from logistics to construction and retail? Does he share the view of the newly appointed chair of the Fair Work Agency that a priority must be a crackdown on sham self-employment in order that the Employment Rights Act is a success and that workers who suffer those contracts get the minimum wages and rights that they have earned?

[Lord Leong (Lab)]

My noble friend is right draw attention to this matter, on which she has long been a thoughtful voice. In 2024, the Low Pay Commission estimated that some 20% of workers paid at or around the wage floor were underpaid the minimum wage. Analysis conducted by the Resolution Foundation suggests that 900,000 UK workers per year have their holiday pay withheld, worth some £2.1 billion. A similar analysis published by the Trades Union Congress estimated that 2 million workers do not receive their holiday pay and entitlements amounting to more than £3 billion per year, and 1.8 million workers do not even receive a pay slip. My noble friend is absolutely right. We need to crack down on these shambolic practices, and the Fair Work Agency will address them.

[Lord Fox (LD)]

The Minister has already said that this new body will involve existing bodies, many pointing in opposite directions in their reporting. The Gangmasters and Labour Abuse Authority points to the Home Office, the Director of Labour Market Enforcement points elsewhere, and there will be bits of Treasury in there. This will not be a simple exercise in creating a new organisation. During the passage of the Bill, my Amendment 277 sought a full review of the process for this before the enactment of the Bill. The then Minister declined but undertook to do extensive consultation. Can the Minister confirm that that consultation will still happen? Can he give your Lordships’ House some idea of when the statutory instruments required to enact this organisation will come? When are the Government expecting it to be fully operational?

[Lord Leong (Lab)]

I thank the noble Lord for reminding us of his amendment in Committee. As far as I know, and I will obviously correct by way of a letter, the consultation is happening and statutory instruments—secondary legislation—will follow suit. We hope to get this up and running by April 2026.

[Lord Leigh of Hurley (Con)]

My Lords, the one thing one would have thought the Government had learned from the Budget is that business cannot deal with uncertainty. Most of the Fair Work Agency legislation is going to be in secondary legislation, so we need to know exactly when that is going to come out. Importantly, as my noble friend said, the SME community is very worried. SMEs employ 16 million people. Will the Government commit to set up a dedicated SME consultation panel to review the Bill’s rollout and try to avoid unintended consequences?

[Lord Leong (Lab)]

As I mentioned earlier, the intention is to have the secondary legislation in place and for this to be set up in April 2026. As for engagement with SMEs, we have stressed that there will be an advisory board within the Fair Work Agency made up of representatives from business organisations, big and small, trade unions and independent representatives so that they can feed in their concerns and so that the Fair Work Agency will be able to do its job.

[Lord Londesborough (CB)]

My Lords, the Minister just mentioned that as many as 400,000 workers are being paid under the minimum wage and another 900,000 are having their holiday pay withheld. Given the enormity of these numbers, how will the FWA be resourced to deal with the scale of its many responsibilities, particularly the delivery of an agile, fully-functioning and accurate database that has to cover more than 5 million businesses and 33 million workers to ensure that law-abiding businesses, particularly small and micro ones, are not unfairly targeted or indeed distracted from delivering growth?

[Lord Leong (Lab)]

The noble Lord is right to raise that concern, and I will set out the Government’s position. As I said earlier, the agency’s approach is proportionate and risk based. It does not create new obligations, and it consolidates existing rules into a clearer and simpler system. Micro-businesses up and down the country already comply with the minimum wage, holiday pay and sick pay, so there is no need for them to do anything else and they will see no changes to their day-to-day operation. Our focus is on serious or repeated abuse, not technical errors, and we will work with business groups to ensure that the transition is smooth and supportive for very small firms.

[Lord Hunt of Wirral (Con)]

My Lords, is the Minister aware of the words of the Chancellor of the Exchequer, who said that, too often,

“regulation … acts as a boot on the neck of businesses, choking off … enterprise and innovation”?

I acknowledge that the Minister has an impressive background in small business, building up businesses. How is he going to ensure that the Fair Work Agency is structured in a way that ensures that it does not become the kind of regulator against which the Chancellor of the Exchequer spoke?

[Lord Leong (Lab)]

I thank the noble Lord for giving me an opportunity to set out the Government’s position. As I say, we recognise the pressures on small firms. That is precisely why the Fair Work Agency consolidates the current four enforcement agencies into one, thus setting up a simpler and clearer regime. It reduces duplication, clarifies and enforces, and it provides a single point of contact for guidance and support. We aim to simplify rather than add more layers of regulation, while ensuring that responsible employers —and I mean responsible—are protected from being undercut by those who abuse and ignore the law.

[The Earl of Erroll (CB)]

My Lords, should we not remember Reagan’s great stricture that

“the nine most terrifying words in the English language are: I’m from the Government, and I’m here to help”?

[Lord Leong (Lab)]

Well, I am from the Government, and I am here to help. I am here to help those businesses that do well and behave themselves; for them, nothing will happen. If employers abuse the system, the Government will step in and take action.

As this is my last time at the Dispatch Box for 2025, I take this opportunity to wish everyone a merry and peaceful Christmas and a prosperous New Year.