Employment Rights Bill

Lord Londesborough Excerpts

2nd reading
Thursday 27th March 2025 Lords Chamber

[Lord Londesborough (CB)]

My Lords, I have just four minutes, so I will not beat about the bush. While I understand the need to bear down on unscrupulous employment practices, this Bill is fundamentally misguided, out of date and out of touch and will wreck the spirit of enterprise. It will damage jobs, productivity and wages across both the public and private sectors. That is not just my view, but the OBR’s. The impact assessment, which claims that the Bill will have a net positive impact on growth, is guilty of fantasy economics, suggesting that its authors have little feel for, or experience of, creating jobs, developing careers or even meeting payroll.

Perhaps most troubling is that all the clauses in this 300-page Bill, and its 200 pages of Explanatory Notes, apply to all employers without exception, whether you are a UK multinational with a workforce of 100,000, a start-up with 10 staff or a family business with two employees. It is one size fits all, whether we are talking about day one rights, probationary periods, guaranteed hours or flexible working. This Bill shows scant regard for building a competitive economy with modem working practices. It discriminates against SMEs—our country’s engine of growth—and offers nothing for freelancers and the self-employed, for which perhaps we should be grateful.

My views are shaped by my lived experience over 30 years as an entrepreneur and employer, from a start-up with two employees around the kitchen table to building a workforce that grew to 10 staff, then to 50, 100 and eventually to 300 employees, plus 100 freelancers. I learned what it takes to recruit and train people effectively, to incentivise and reward them and to develop their careers from probation to permanent, from junior to management and from internship to becoming an equity partner. I took risks and made many mistakes along the way, from hiring the wrong people, holding on to staff for too long, overpaying, underpaying, growing too quickly and having to downsize in the rough and tumble of the free market. But here is the thing: I never once ended up in an employment tribunal and my experiences with staff and freelancers were overwhelmingly positive, driven by common mutual interest and without the need to resort to onerous employment manuals, interfering HR departments or, indeed, employment lawyers.

This Bill suffers from overreach and will kill entrepreneurial spirit, coming as it does on the back of the misguided NICs Bill, on which I have fought hard to protect our smaller businesses—and I will go into battle again on their behalf in Committee on this Bill, mindful that the Federation of Small Businesses reports that two-thirds of its members say that the proposals in the Bill will make them curb hiring. There are two professions that will benefit from this Bill—HR practitioners and employment lawyers—but, in terms of productivity, this Bill is terribly timed and represents another giant vampire squid sucking the life out of our economy.

Employment Rights Bill

Lord Londesborough Excerpts

Committee stage
Tuesday 29th April 2025 Lords Chamber

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.