Employment Rights Bill

Debate between Lord Sharpe of Epsom and Baroness Noakes

Committee stage
Monday 16th June 2025 Lords Chamber

[Lord Sharpe of Epsom (Con)]

My Lords, as my noble friend Lady Coffey mentioned a short while ago, we have been told by this Government on numerous occasions that growth is their number one priority. Growth, growth and more growth has become something of a mantra for Ministers, but the harsh reality is that their actions are consistently undermining this stated objective, and their latest economic performance demonstrates the urgent need for the amendment before us today.

The UK economy shrank more than expected in April. The standard measure of economic output, GDP, contracted a sharp 0.3% according to data from the Office for National Statistics. Additional costs on businesses were also levied during that month as employer national insurance contributions took effect, which businesses told the ONS played a part in their performance. The biggest part of the economy, the services sector, contracted by 0.4% and manufacturing dropped by 0.9%. The Government are manifestly failing to reach their stated growth target.

It is not enough for the Government to tell workers, businesses and the British public what they want to hear about growth while simultaneously implementing policies that actively undermine economic competitiveness. The trade union provisions in the Bill represent a perfect example of this contradiction: they expand the protections and rights that will inevitably increase costs, reduce flexibility and diminish our international competitiveness, all while the Government claim to be prioritising growth.

My amendment would require the Certification Officer, when discharging functions under the Bill’s expanded trade union framework, to advance the objectives of international competitiveness and medium to long-term economic growth. It represents a vital safeguard against the economic damage that unconstrained implementation of these provisions could inflict. The Certification Officer oversees trade union administration from registration to financial transparency to complaint procedures. Under the Bill, these functions will expand significantly as new rights and protections are introduced. Without a growth duty, there is no mechanism to ensure that the Certification Officer considers the broader economic implications of how these expanded powers are exercised.

We operate in an intensely competitive global economy. Our European neighbours and international competitors are not standing still while we load additional costs and restrictions on to British businesses. When the Certification Officer makes decisions about trade union regulation, registration and oversight, those decisions must be made with full awareness of their impact on our ability to compete internationally. Countries such as Germany, despite having strong trade union traditions, maintain regulatory frameworks that prioritise economic competitiveness. Singapore, Ireland and other successful economies have demonstrated that worker protection and economic growth are not mutually exclusive, except when regulators are required to balance these objectives explicitly.

This amendment ensures that as we expand trade union rights and protections, we do so in in a way that enhances rather than undermines our economic position. It requires the Certification Officer to ask not just whether a decision serves trade union interests but whether it serves the broader national interest in maintaining a competitive and growing economy.

The concept of growth duties is well established across government precisely because regulators have learned that narrow focus on single objectives can create unintended economic consequences. Financial regulators have competitiveness objectives because financial regulation that ignores competitiveness can drive business overseas. Planning authorities must consider economic impact because planning decisions that ignore economic consequences can destroy local economies. Environmental regulators operate within frameworks that balance protection with economic considerations because environmental regulation that ignores economic reality becomes counterproductive.

The offshore employment trend demonstrates exactly why such balanced approaches are essential. When regulators focus solely on enhancing protections without considering economic consequences, they risk creating conditions where the protections become meaningless because the activity they are meant to regulate simply moves beyond their jurisdiction. It would be extraordinary if trade union regulation, which directly affects workplace costs, flexibility and productivity, were exempt from such considerations. This amendment brings the Certification Officer into line with best practice across government by requiring explicit consideration of economic impact.

The Government may argue that trade union regulation should focus solely on worker protection without economic considerations, but this position is fundamentally flawed for a number of reasons, and recent evidence makes it increasingly untenable. For example, it would create an artificial separation between industrial relations and economic policy that exists nowhere else in government and has proven counterproductive in practice. Every other area of regulation requires consideration of economic impact precisely because regulators have learned that ignoring economic consequences undermines policy objectives. It would also contradict the Government’s stated priority of growth while simultaneously demonstrating the practical impossibility of separating worker protection from economic performance.

When companies such as The Legends Agency can build multi-million-pound businesses by helping UK employers avoid UK employment law, the Government’s approach has clearly failed on its own terms. I beg to move.

[Baroness Noakes (Con)]

My Lords, I am a great fan of international competitiveness and growth objectives for regulators. When the first one was introduced for financial services regulators in the Financial Services and Markets Act 2023, I thought it was an incredibly important addition to the way regulation of financial services is undertaken. Just last week, your Lordships’ Financial Services Regulation Committee issued its report on how that international competitiveness and growth objective is working, and I commend it to noble Lords.

I support what my noble friend Lord Sharpe of Epsom has said about applying the duty to the Certification Officer, but I invite him to consider whether there is a much more important area where such a duty should be applied in this Bill, which is to when the Secretary of State makes decisions about, for example, the enforcement provisions or making the various regulations that we know are necessary to make Part 1, and indeed other parts of the Bill, operate effectively.

The most important aspect of the Bill is going to be driven by what the Secretary of State does once it is enacted, but there is not an equivalent requirement on the Secretary of State to take into account the needs of international competitiveness and growth. It is essential for the Secretary of State to have that at the front of his mind when making regulations that will have such a big impact on the way that businesses operate in this country. I therefore commend my noble friend’s amendment, but if he is considering bringing something back on Report, he might consider something a little broader.

Financial Services Bill

Debate between Lord Sharpe of Epsom and Baroness Noakes

Committee stage
Monday 8th March 2021 Grand Committee

[Baroness Noakes (Con)]

My Lords, I support the call of my noble friend Lady McIntosh of Pickering for a review of short-selling legislation, although I start from a very different position to her. As she explained, our short-selling rules were acquired via the EU, which is how they found their way on to our statute book. I believe that all EU-derived legislation should be reviewed at some stage; I am not sure this is the most pressing area, but it should certainly be reviewed.

When the EU introduced its short-selling rules in 2012, we had to follow, but it is far from clear that, left to our own devices, the UK would have introduced such rules. The FCA has been clear that the existing powers to trigger a ban on short selling would not be exercised lightly and the bar must be set very high. That must call into question whether we actually need the powers. The trouble with regulators is that, once they have powers, they never give them up voluntarily, even if they can never envisage when they would be used. A review would allow us to look at this again. We ought not to allow regulators to keep draconian powers to intervene in markets without very strong justification.

Against that background, I was particularly disappointed to see that the EU’s temporary—though extended several times—reduction of the threshold for notification of short selling, which expired when we left the EU, was almost immediately reinstated into UK law. That is not a good direction of travel.

There is nothing intrinsically wrong with short selling. It can provide liquidity to markets, improve bid-ask spreads and assist in price discovery; it also offers a route to hedging long-only exposures. There are, of course, downsides, including the potential for unlimited losses, so the risks have to be well understood and managed. We recently saw in the US that some hedge funds got their fingers burned on short selling GameStop shares due to action taken by amateur investors; but that merely highlights the need for sound risk management—it does not speak to short-selling itself being a problem or suggest that powers are needed for market intervention.

[Lord Sharpe of Epsom (Con)]

My Lords, I refer to my interests in the register. It is always a pleasure to follow the noble Baroness, Lady Noakes; it is also something of a challenge as she speaks so authoritatively on matters such as these and I often find myself agreeing with her.

The noble Baroness, Lady McIntosh, spoke compellingly in her introduction to this amendment. She made the point that she has misgivings about the practice. Clearly, for a practice that dates back to the first days of stock markets, short selling retains its ability to attract controversy. Indeed, a short seller was accused of manipulating the share price of the Dutch East India Company in Amsterdam as long ago as 1609. The noble Baroness, Lady Bowles, suggested that it is sometimes regarded as an evil practice, so I felt that it deserved a defender today.

The goals and effects of short selling are often misunderstood and, when markets enter a downturn, many are quick to call for short selling to be banned. While such bans are unfortunate, they have left us with a wealth of data on the effects of short selling and how the practice contributes to the proper functioning of markets. The practice of selling a stock short is always the same but the intention behind it varies considerably. At its most common and passive, short selling is a conservative investment technique used to hedge against risk, as the noble Baroness, Lady Noakes, has just highlighted, but obviously at the cost of forgoing some returns. On the point made by the noble Baroness, Lady McIntosh, about the volatile first quarter of 2020, the Alternative Investment Management Association, which represents 2,000 corporate members in 60 countries, reported that funds which had hedged in this way outperformed the broader market by 20%.

To be sold short, a stock has to be borrowed, and it will usually be borrowed from an asset owner for a fee. The fee helps the returns to the holders of that stock—in practice, anyone who participates in a long-term equity fund and, therefore, probably everybody involved in this debate. The fact of selling the stock helps create valuable liquidity, which is often essential to ensure the smooth functioning particularly of smaller markets, but it also works in reverse during periods of market turbulence. In practice, short sellers are often the buyers of last resort when markets are under pressure; they take profits in their short positions and therefore help to provide stability to markets.

The more controversial end of the short-selling spectrum is that populated by activist short sellers. They are often characterised as predators who create and exploit misery, but that is simply not the case. These investors act as the canaries in the coal mine. Short selling does not directly undermine the health of a company any more than buying its shares improves its fundamentals. Companies are not deprived of funds when investors sell shares, nor do they become financially stronger when investors buy shares in public markets. Short sellers cannot send a good business under. What they can do is expose bad business models, bad management, dodgy accounting, fraud and other bad behaviour. At a more mundane level, they can expose unjustifiable valuations.

There are plenty of recent examples but one will suffice as the regulatory reaction was instructive; here I am very grateful to Jack Inglis, the CEO of the Alternative Investment Management Association, who provided me with some detailed facts. In 2019, Wirecard in Germany famously went bust. It was at the time a member of the main German index, the DAX 30. The first queries into the company’s accounting practices date back to 2014, when short positions began to be initiated. However, when the pressure mounted on the company to explain itself, the German regulator instead went after journalists at the Financial Times who had published a deep dive into the company—and, of course, the short sellers. They filed a criminal complaint against them, accusing them of market manipulation, and, in February 2019, initiated a two-month ban on short selling the shares, citing the need to curb

“a serious threat to market confidence”.

As we all know, the company subsequently went bust, the subject of a multiyear fraud involving €1.9 billion going missing and the CEO being arrested, among other things.

Since then, Germany has become much more circumspect about joining other European states in banning the practice. Indeed, the regulator’s president apologised and paid tribute to those

“journalists, analysts or yes, let it be short sellers, who have been digging out inconsistencies persistently and rigorously.”

In saying this, he was following a long historical tradition—such bans are inevitably repealed.