Julian Smith
Main Page: Julian Smith (Conservative - Skipton and Ripon)
Vince Cable
My experience is that colleagues behind and beside me have a very balanced view of this question—we have no difficulties in this area at all. We will indeed rely heavily on ACAS and it is important that it is properly resourced, so we will obviously have to look at that, but we have had no warnings that it cannot handle the processes that we propose to introduce. If the right hon. Gentleman will let me, I will try to describe what those are.
Our reforms are not about removing individual employment rights; they are designed to ensure that the tribunal system is fair to all parties and supports labour market flexibility. They are meant to improve the prospect of employers and workers sorting out problems through reconciliation—ACAS-based dispute resolution—rather than the adversarial and costly method of going to court, as my hon. Friend the Member for East Surrey (Mr Gyimah) admirably pointed out. Tribunals are a costly and stressful process for everyone involved. Giving all parties a new opportunity to resolve disputes through ACAS will maximise the chances of resolving a problem without going to a tribunal.
We want to do more to encourage parties to reach an agreed solution at an earlier stage. We will therefore introduce an additional clause in Committee to ensure that the offer of a settlement cannot be used against an employer in an unfair dismissal case. That will facilitate the use of settlement agreements, making it easier and quicker for employers and employees to come to an agreed settlement where an employment relationship is not working.
Julian Smith (Skipton and Ripon) (Con)
I welcome the decision to move forward with settlements and compensation, which is a really good move, particularly for small businesses, and thank the Secretary of State for listening to many Government Members who have put the case for more clarity for smaller businesses.
Vince Cable
I thank my hon. Friend for his positive response. The Under-Secretary of State for Business, Innovation and Skills, my hon. Friend the Member for North Norfolk (Norman Lamb), who will guide the Bill through Committee, will be able to develop that a little more, and any insights that my hon. Friend has for improving that new idea will be warmly received.
Vince Cable
I have an open mind if the hon. Gentleman has good ideas as to how that can be done. We have committed ourselves to removing the gold-plating of European legislation as it applies to Britain, and if he has good, constructive ideas, we are happy to look at them.
Julian Smith
Has the Secretary of State given any further thought to including EU directives and legislation in the quarterly statements that are being produced by his Department? Earlier, he said in answer to a question of mine that he might consider it, and I would be interested to know whether he has done so.
Vince Cable
The Minister of State, my hon. Friend the Member for Hertford and Stortford (Mr Prisk), who has done admirable work in progressing this agenda, tells me that we are indeed planning to do that and that it will appear in that form.
Mr Chuka Umunna (Streatham) (Lab)
I beg to move,
That this House, whilst supporting the principles of the Green Investment Bank and affirming its belief that active government should work in partnership with business to encourage long-term sustainable economic growth, facilitate enterprise, protect the rights of all, particularly low-paid, workers and simplify regulation where necessary, declines to give a Second Reading to the Enterprise and Regulatory Reform Bill because it does not provide a strategy for economic growth; believes that the Bill contains inadequate measures to boost business confidence, enhance this country’s international competitiveness, increase competition in consumer markets or protect consumers from powerful vested interests; further believes that the Bill fails to provide sufficient support to empower shareholders, investors and employees on executive remuneration to bring to an end excessive rewards for corporate failure; and is concerned that the Bill grants the Secretary of State additional powers to alter compensatory awards for unfair dismissal and contains provisions relating to the conciliation process that could dilute the rights of people at work.
I will deal with each element of the Bill in turn and, in so doing, explain our amendment. Given the very varied nature of the Bill, that will take some time, but I will do it as swiftly as possible because many others want to take part in the debate.
First, I want briefly to consider what the Government claim the Bill will achieve overall. In January last year, not long after the Government’s spending review, the Secretary of State told this House:
“economic growth is now strong. It will become stronger as a result of the work that the Government are doing in stabilising finances”.—[Official Report, 13 January 2011; Vol. 521, c. 429.]
Quite the opposite has turned out to be the case. Since the spending review, the economy has shrunk by 0.4%, we have been tipped into a double-dip recession, over 2.6 million people are now out of work, and 50 businesses are going under every single day. That was not the case back in May 2010; it is now, thanks to the policies of this low-growth Government. When my party left office, the World Bank ranked the UK fourth in the world and first in Europe for ease of doing business. This year, we have slumped to seventh place. Businesses face an increasingly difficult operating environment, not least because of the problems that sound and successful firms have found in accessing finance, with net lending to business contracting year on year in every month since this Government came into office.
In fairness to the Secretary of State, he has recognised his and the Government’s failings. He said that they have no “compelling vision” for the country, that they lack
“a confident message on how we will earn our living in the future”,
and that there is
“no connected approach across government”
to driving growth. He suggests that the Bill will change all this. Indeed, on the day of its First Reading he said:
“The measures in the Enterprise and Regulatory Reform Bill will help make Britain one of the most enterprise-friendly countries in the world.”
He said that it would resolve the ongoing issue of no growth. That remains to be seen. I sincerely hope that that will be the case for the sake of our country, but I and many businesses doubt it.
Julian Smith
I challenge the hon. Gentleman’s point that Labour left the country in a good regulatory state. The CBI states that 107 of the 152 employment regulations were put on the statute book during Labour’s period in power. Was that leaving the country in a good regulatory state?
Mr Umunna
What I cited was the World Bank’s assessment of the state in which we left the environment for businesses to carry out their work. If the hon. Gentleman reads the guidance that has been issued by his Government, he will see that we have been praised for doing things such as introducing the primary authority scheme, which was supposed to, and did, reduce the regulatory burden on businesses.
Perhaps the Secretary of State’s most damning criticism of his and his Government’s actions is that they are “frankly, rather piecemeal”. At first sight, that is precisely what the Bill is. It is a hotch-potch of measures that provides no discernible overall vision or confident message. There is no evidence of a connected approach across Government to drive growth.
Business was straight off the blocks with its criticisms of the Queen’s Speech, the centrepiece of which was this legislation. The director general of the British Chambers of Commerce said what many people have been saying for many months:
“There is a big black hole when it comes to aiding business to create enterprise, generate wealth and grow.”
He is right. Our amendment makes it clear that the Bill, viewed as a whole, does not change that assessment.
I will quickly go through the parts of the Bill and set out our position on each.
Mr Umunna
Yes it is: it is precisely what they have been doing with the promotion of the Beecroft report by the Prime Minister and others. I should say that the Secretary of State is no innocent bystander. His little chat with The Sun on Saturday evening generated an article in that paper yesterday carrying the headline “Quick Cash for Sack”. This hardly reassures vulnerable employees who are anxious about their job security.
That article was, of course, the pre-spin for the new measure—which has been mentioned today—to prevent employees from using a pay-off offer as evidence in a tribunal. The measure will presumably be inserted in the provisions in the Bill that deal with the new settlement agreements. We were notified of the proposal only when I read my copy of The Sun yesterday, as it did not appear in the Bill or the explanatory notes, so we have not had proper time to consider it. At first sight, it is questionable whether it would work in practice. As a former employment lawyer like me, the Minister responsible for employment relations will know that essential components of an employment relationship are trust and confidence between the parties. How on earth can trust and confidence continue to exist if a pay-off offer is made out of the blue when the employee has done nothing wrong and decides to reject the offer? What happens then? This needs further clarification. So too do the Government’s intentions in relation to the employment law provisions of the Bill and the Beecroft report, because, further to the questions that Labour Members have asked the Secretary of State, I am no clearer about how many parts of the Beecroft report will potentially be inserted in the Bill.
Julian Smith
I assume that the hon. Gentleman, as a former employer lawyer, was involved in negotiating compromise agreements. Surely the proposals that we are discussing this evening are just simplified compromise agreements for smaller companies which will be much easier to administer and will not involve payment of the fees that I am sure he earned advising bigger companies on such agreements.
Mr Umunna
No, the hon. Gentleman is wrong. As things stand, the position in law is that if a pay-off offer is made during a “without prejudice” discussion between an employee and an employer—which would take place if there was an ongoing dispute—that cannot be adduced as evidence in court. However, if a pay-off offer was made out of the blue where there was no pre-existing dispute, that could be adduced as evidence. What I discern from what is being proposed is that the Government are seeking to ensure that that situation is covered too, so that such an offer could not be adduced in evidence in court either. [Interruption.] I believe that the Minister responsible for employment relations is agreeing with my interpretation. My issue with that is that if an employee in a firm is quite happy and believes that they have done nothing wrong, but the employer does not like them for some reason, decides that they are going to get rid of them and offers them a set sum, the employee should be able to adduce that as evidence to show that the employer was intent on getting rid of them come what may. That is the point that I am seeking to make.
Further clarification will be needed. However, let me once again ask the Secretary of State—I will give way to him on this point—how many parts of the Beecroft report are going to be inserted in the Bill by way of amendment, if any. He has—I think—been clear with us today that the proposal for a no-fault dismissal measure, on which the consultation has just closed, will not feature in the Bill. How many other parts of Beecroft are likely to feature in the Bill through amendments? I am happy to give way to him if he is willing to answer that question.
Mr Umunna
I am slightly surprised by that answer because of the equivocation. The Secretary of State commissioned the report—it was his report—and this is his Bill, so surely he can provide us all with a categorical assurance now that no elements of Beecroft will feature in the Bill. I am happy to give way again, if he wishes to clarify that point. No? I think that people will note his failure to reply.
With regard to what is in the Bill, our amendment makes it clear that the proposals to grant the Secretary of State new powers to vary the limits for compensatory awards in unfair dismissal cases are totally unacceptable. Clause 12 proposes to give the Secretary of State the power to cap the compensatory award, which is currently capped at £72,300, at a maximum of between median earnings and three times median earnings—that is, between £26,000 and £78,000—or one year’s earnings, or whichever is the lower of the two. No advance warning of this measure was given, and there has been no consultation on it. Why? It is also hard to see the justification for the proposal when we consider that the median award for unfair dismissal came in at just over £6,000 in the past year.
The practical effect of the proposal would be that those on average or above-average earnings—middle income earners in particular—would not be properly compensated if they were treated unfairly by their employers. Let us be clear who we are talking about. This would affect accountants, architects, chartered surveyors, insurance brokers, lawyers and mechanical engineers, as well as many other public service professionals. Those people are all in occupations that attract average or above-average earnings. Lower income earners in this country have already been hit hard by the Chancellor’s Budgets since this Government came to office. It is middle income earners who stand to suffer most from this change. Of course, those earning millions every year—who have just been given a huge tax break by the Government—no doubt have plenty in the bank and will not have to worry about this, but that does not apply to the majority of earners in this country.
Julian Smith
Does the shadow Secretary of State think it reasonable that, in 1999, the compensatory award level was £12,000 and that it is now £72,300? Does he think that it has gone up by a reasonable amount over that period?
Mr Umunna
I think it is reasonable, when people have been treated in an appalling and unfair fashion by their employers, that they should be properly compensated.
The Bill contains a related measure to give the Secretary of State the power to vary compensatory awards for employers of different descriptions. The Employment Lawyers Association, of which I used to be a member, said last week that having different rules for micro-businesses, for example, would make people think twice about working for small businesses, knowing that they would have less employment protection than if they worked for a large employer.
We have no objection in principle to the proposal to introduce early conciliation by ACAS in advance of the full submission of a claim to the employment tribunal. I understand, however, that the Government intend to spell out more of the detail in secondary legislation. It is therefore essential that any future regulations be subject to the proper scrutiny of the House. Early conciliation will result in a claimant who is seeking redress having to go through two different processes, with different time limits and different forms to fill in, before instituting a claim. It will therefore be important to ensure, particularly in relation to unrepresented claimants or those with poor literacy and numeracy, that the new regime does not act as a barrier to justice for those seeking redress. Above all, it will be important to ensure that ACAS is properly resourced to carry out its proposed new expanded role. We know that its resources have already been reduced. The Secretary of State and his Ministers will need to give proper assurances and guarantees that it will be properly resourced to carry out this work.
The Bill also contains measures relating to the composition and workings of employment tribunals. As I have said before, we are not opposed to reforming the way in which employment tribunals work, given the frequent problems that employees and employers experience while navigating their way through the system. That is why we supported the establishment of the Underhill review. However, that is quite different from tampering with people’s fundamental rights at work, which we oppose.
Margot James (Stourbridge) (Con)
I welcome the many excellent measures in the Bill that lay the foundations for a low-carbon economy, with the green investment bank being established and the proposed changes to the competition regime, which should simplify matters for business and reduce costs.
I want to focus on the employment law reform provisions, however, as that is the one part of the Bill on which I hope the Government will be persuaded in Committee to move. I want them to go a little further in redressing the balance in law between employers and employees. In no way do I seek to establish some sort of “hire and fire” culture; I very much agree that that would be to the detriment of not only employees, but business. However, I welcome the provisions enabling disputes to be resolved at a much earlier stage, without the need to go to an employment tribunal. That will be a help to both employer and employee, and it is anticipated that 25% fewer claims will end up going to a tribunal as a result, which will save public money and company time and resources. We have also heard this afternoon that any employer offer of a settlement earlier in the process will no longer prejudice the company’s position in any subsequent tribunal hearing. That is a welcome development, and I look forward to hearing further details.
Contrary to the fears that some Opposition Members have expressed, nothing in this Bill changes an individual’s statutory employment rights, but that causes a degree of concern to many of us who have been in business and therefore know how far the balance has tilted towards the rights of the employee, especially in unfair dismissal claims. I took some soundings from people with whom I have in the past been in business, and I want to quote the comments of somebody who does not want to be named. She told me:
“Tribunal culture in the UK means the employer is on the back foot. We have agreed to pay off employees (who have appointed no win-no fee lawyers) that have threatened to take us to court, even when they have no real case, as the amount of time/energy it takes us to fight our case at a tribunal is too high, even when we as employers think we are in the right. This area I feel is the most onerous for me as an employer currently. And for someone with a social conscience, I don’t like paying someone off when they are in the wrong, just because it is the most cost effective thing to do for the business.”
Research by the chamber of commerce among firms employing between 10 and 49 people has confirmed what that individual told me. It revealed that 21% of respondents had been threatened with an employment tribunal in the previous three years, and of those 37% had opted to settle out of court. Many employers of fewer than 20 people simply cannot afford the specialist HR resource required to enable them to defend their position in a tribunal. Only 20% of respondents to the survey defended their claim, and although it was heartening to read that, of those, three quarters won their case, some of the comments quoted verbatim in the research are salutary. One HR director said that he
“cannot emphasise enough how burdensome and draining it is to dismiss people who are performing very poorly or are abusing the rules.”
Another said:
“We won our claim, however the stress was off the scale, it cost our company over £20,000 for something that was never our fault.”
I welcome the review of a related matter—health and safety regulations—being undertaken by the Department for Work and Pensions. That has a considerable bearing on employment law. Although it is beyond the scope of the Bill, I hope that Ministers will confer with their DWP counterparts, as 54% of respondents to that chamber of commerce survey cited concerns about the operation of health and safety rules. A company in my constituency employing between 100 and 150 people, even though it is in many ways a model employer, suffers two or three cases a year of vexatious claims by employees, and even ex-employees, who have created a spurious claim based on an accident they had at work. The company is then in the position of having to prove to the court that it created proper conditions that should have prevented the accident—the onus is on the company to prove that it took adequate measures. That is but one example of the many areas beyond unfair dismissal where, I believe, the rights of the employee are now too far out of kilter with the rights of the employer.
Julian Smith
I think my hon. Friend gets an extra minute for taking my intervention. Does she agree that there is an impact on growth, because when a small company is having to deal with all these issues in employment tribunals, it is not able to focus on creating more jobs and growth? That is what Opposition Members sometimes appear to fail to understand.
Margot James
My hon. Friend makes a good point. The problem is not just the cost of defending claims, but the management time involved. That detracts from the energy that companies need to fight in the market for business. There is no doubt about that.
Julian Smith (Skipton and Ripon) (Con)
I will restrict my comments to the regulatory aspects of the Bill.
The Government were left a regulatory nightmare by the Labour Government. The last Government introduced six regulations a day, the CBI estimates that employment law alone has cost British business £100 billion since 1998, and 107 of the 152 employment regulations on the statute book were added under the Labour Government. Better regulation attempts came and went under Labour. Regulation tsars reporting to the Prime Minister were placed at the top table for about 10 minutes and then quickly dropped. In the good years, Labour not only lost control of our budgets, but added piles upon piles of new rules and red tape on British business and the public sector.
Regulation has a vital role to play in a market economy, but it also imposes costs that can stifle innovation, present barriers to market entrants and deter economic activity, as we have heard in numerous examples tonight. I do not understand the evidence given by the shadow Secretary of State. A recent MORI poll for Capital One’s report, “The ties that bind?”, confirmed that regulation tops the list of issues facing very small businesses, with 64% of micro-businesses believing that the regulatory burdens that they face are far too high.
The Government have done a lot on this issue: they have set up the independent advisory committee on regulatory reform; they are publishing quarterly regulatory statements; there has been the red tape challenge, which is now part of the Bill; there is the ongoing employment law review; and the one-in, one-out process is firmly under way and is holding each Department to account. The Government have done much more serious work on regulation over the past two years than Labour did in 13. This Bill is part of that good work.
Since 2010, the Government have introduced a number of measures to simplify the employment environment, raising the qualifying period for unfair dismissal from one year to two, reducing the risk of vexatious tribunal claims, and introducing fees for those wishing to pursue a tribunal claim. As we have heard, being taken to a tribunal is one of the biggest fears of our smallest employers. The main change—introducing mandatory pre-claim conciliation—will help. Indeed, the Forum of Private Business has already said that 70% of its members believe that more conciliation is a positive step in avoiding cases escalating. Such an approach is also good value for money—ACAS has had a 75% success rate in the discretionary conciliation cases it has dealt with—and will save businesses the cost of defending themselves, which comes to £4,000 on average.
However, I have a few observations. If we are to give ACAS this further power, does it have the resources for it? That issue came up in the consultation. Also, do we need to restrict mediation to ACAS? Can we not include private and other providers to help in mediation? I would be interested to hear the Minister’s comments about that. ACAS also has to secure permission from the employee to contact the employer during the conciliation process. We need to give the mediator absolute access to both the employee and the employer, so that it can properly conduct the mediation process. We also need to ensure that the mediation process is as informal as possible, so that the employer does not have to get tooled up with expensive lawyers, which is an issue that the Federation of Small Businesses has raised. I am concerned about the proposals for fines because, as the CBI has argued, tribunals are a form of grievance resolution, not a criminal court. If we are going to have fines, there needs to be some sort of exemption based on company size.
However, let me get back to the positives. The change to unfair dismissal compensation is a good move. It will mean that companies of different sizes should be able to get different awards, which is much fairer for the very smallest businesses in our country. On unfair dismissal, I pay tribute to the Minister, because with these compromise statements he has got the key to exactly what businesses want. I think they will be known as “Lamb statements”, because they will make business much easier for our smallest employees and will make compromise agreements—which have previously been accessible only to very well-off companies—accessible to our smallest firms.
Let me turn to regulation more generally. There have already been some good moves, which I outlined earlier. The sunset clauses in the Bill, the relaxation of inspections, the red tape challenge and the primary authority changes are all good moves too. However, I urge the Government to be a bit more ambitious. May I urge Ministers to look at the one-in, one-out rule sector by sector, and segment of law by segment of law? Can we include European directives as soon as possible? Can we also take a hard look at the infrastructure of our regulatory reform? If we look at what the Americans are doing with OIRA—the office of information and regulatory affairs—we see the disparate construction of our different deregulatory bodies, with the Better Regulation Executive in BIS, the local regulatory offices and various other groups. We should be trying to bring things together, as the Americans are doing, so that we can make a serious attempt at reducing regulation in future.
A lot has been done, but we need even more ambition. I urge Ministers at all times to listen to the voice of business, particularly those not represented by business organisations, which at the moment are crying out for the freedom just to get on with their jobs.