Equality Act 2010 (Equal Pay Audits) Regulations 2014

Monday 28th July 2014 Grand Committee

Motion to Consider

16:40

Moved by

[Baroness Northover]

That the Grand Committee do consider the Equality Act 2010 (Equal Pay Audits) Regulations 2014.

Relevant document: 7th Report from the Joint Committee on Statutory Instruments

[Baroness Northover (LD)]

My Lords, I am pleased to present these draft regulations to the Committee. They are intended to ensure that employment tribunals require employers who have breached equal pay law to carry out an equal pay audit.

These regulations are needed because, despite the introduction of equal pay legislation in the 1970s, there remains clear evidence of a persisting pay gap between men and women. Our concern is that a certain proportion of this disparity is due to the unlawful pay practices of some employers. Although there has been welcome progress, the Government believe that there is still more to do to help women move towards overall pay parity with their male colleagues. The key to this is continuing to build on the voluntary initiatives that we have introduced, coupled with greater transparency and backed where appropriate with tough measures to hold to account those employers who have been found to have flouted the law, whether knowingly or not.

That is why from 1 October, subject to parliamentary processes, we propose that where an employer has been found by a tribunal to have breached the equal pay or pay-related sex discrimination provisions in the Equality Act 2010, he or she will, by virtue of Regulation 2, be subject to a requirement to conduct an equal pay audit. The regulations contain certain exemptions and exceptions to this requirement, which I will explain shortly. Once undertaken, the results of an audit will enable the employer to identify any action that needs to be taken to prevent equal pay law breaches from continuing or recurring. Moreover, to ensure that this is a transparent process, under Regulation 9 the employer will also be required to publish the results of his audit. This will afford affected employees the opportunity to view the results and consider further action, where it is warranted.

The legislation providing for equal pay between men and women who do the same or equal-value work for the same employer has been in force since 1975. According to statistics published in December 2013 by the Office for National Statistics, the overall median gender pay gap still stands at 19.7%, although this is considerably lower than the figure of 25% 10 years ago. The overall figure does not tell the full story, however. For women under 40 who work full-time, the pay gap has all but been eliminated, but for older women, many of whom take career breaks in order to bring up children, the disparities in pay with their male colleagues become more marked. That is also true for part-time workers.

We are taking a wide-ranging approach to addressing this challenge. For example, we are promoting greater transparency on gender employment issues through banning pay secrecy clauses and promoting “Think, Act, Report”, a framework that encourages employers to think about gender equality on key issues such as recruitment, retention, promotion and pay—it currently covers over 2 million employees in more than 200 leading companies. We have also extended the right to request flexible working to all employees from this year and will be introducing a system of shared parental leave from 2015. Both these measures allow more women to remain at work and so avoid falling behind in pay terms. We have strongly promoted the work of the Women’s Business Council, we have implemented the work of the noble Lord, Lord Davies of Abersoch, on women on boards and from 2015 we will introduce tax-free childcare for working families.

The Committee will, I hope, therefore recognise that the Government are working in many ways to promote greater equality and tackle discrimination in the workplace. However, in cases where unlawful pay discrimination still persists, the regulations before the Committee represent a further important addition to our work.

These regulations will ensure that employers found by an employment tribunal to have broken equal pay law undertake a systematic evaluation of their pay and reward systems to ensure that existing breaches do not continue and that future breaches do not occur. The regulations provide that an equal pay audit should identify any differences in pay, including non-contractual pay, between men and women doing the same or equal work in the organisation.

16:45

Under Regulation 6, should differences in pay be discovered that cannot be explained or justified other than by reference to the gender of the employees, the equal pay audit must also include an action plan for eliminating those differences. However, we have also included safeguards in Regulation 3 to ensure that employers are required to undertake equal pay audits only when it is appropriate to their particular circumstances.

Therefore, under Regulation 3, employment tribunals must not order employers to carry out equal pay audits when any of the four exceptions set out in the regulations apply. These exceptions are, first, where an employment tribunal considers that an audit completed in the previous three years meets the requirements set out in the regulations. An example of this might be where an employer has, within three years of the tribunal’s finding of a breach, undertaken a voluntary audit that contains all the information that would be required under Regulation 6.

The second exemption is where it is clear without an equal pay audit whether any action is required to avoid equal pay breaches occurring or continuing. An example would be where all the jobs in the employer’s organisation are clearly graded and where the information about the employer’s grading and pay system is available to all employees who wish to see it.

The third exemption is where the breach gives the employment tribunal no reason to think that there may be other breaches. This could be where the employer has transparent pay systems and policies and it is clear to the tribunal that the breach is a one-off, rather than a result of systemic practice on the part of the employer.

The fourth exemption is where the disadvantages of undertaking an equal pay audit outweigh the benefits. An example of this could be where the tribunal accepts that the employer is in financial difficulty and the cost of undertaking the audit could send the employer into liquidation.

We do not want the audit to be ordered when any of these four situations apply. In particular, we want to ensure that employers who have already taken action to put in place robust and compliant pay structures are not forced to duplicate this work. Under Regulation 4, the requirement to carry out an equal pay audit will also not apply to employers whose business is a micro-business or a new business. We believe that it is right that new and micro-businesses should initially be shielded from a requirement to undertake equal pay audits. This 10-year exemption period recognises that a fledgling or very small business might be disproportionately affected by the costs of having to do so.

For the purposes of these regulations, a micro-business is a business with fewer than 10 employees immediately before the date on which the employment tribunal determines that the employer is in breach of equal pay laws. Businesses will be exempt from these regulations as long as they employ fewer than 10 people on the day before the equal pay judgment is made.

A new business is a business that has been trading for 12 months or fewer on the day the equal pay claim is made to an employment tribunal. This exemption will apply only when the business is 12 months old or less on the day the equal pay claim is made. I should make it clear that this does not mean a 10-year get-out for every employer not covered by the regulations at the outset. A micro-business would continue to benefit from this exemption only as long as it remains a very small enterprise, while a new business will of course lose its protection after 12 months.

While the schedule to these regulations sets out the definition of micro and new businesses in more detail, I should note for the benefit of the Committee that the Joint Committee on Statutory Instruments has reported that the regulations require further explanation of the definition of a business relating to these exemptions, in particular a situation where what might appear to be a micro-business is in fact part of a larger business consisting of linked enterprises. I thank that committee and the Secondary Legislation Scrutiny Committee for the thorough and expert consideration that they have given these regulations.

In response to the JCSI’s comments, I reassure the Committee that we believe it should be sufficiently clear to a tribunal, based on the facts of each case, as to what would constitute a separate business. I hope that it will also reassure noble Lords if I point out that, if a business thinks that it has been ordered to undertake an equal pay audit when it fact it should have been exempt because it was properly a micro-business, it can, of course, appeal the tribunal’s order. Moreover, no very small business will be at risk from these regulations if it observes the law and operates in line with equal pay requirements.

After an equal pay audit has been ordered by an employment tribunal and completed by the employer, Regulation 9 requires the employer to publish the results of the audit so that it is accessible to the staff to whom the audit relates. This must be done by publishing the audit result on the business’s website. Under Regulation 9(5)(a), the employer will also be required to provide the employment tribunal with evidence that they have complied with this requirement. Should an employer fail to comply with an order to carry out an equal pay audit, employment tribunals have the power under Regulation 11 to order employers to pay a penalty to the Secretary of State, which must not exceed £5,000. Regulation 11(2) also provides employment tribunals with a further power to impose subsequent financial penalties on employers that do not undertake their audits or whose audits are not signed off by the employment tribunal. These penalties can be repeated until such a time as the employer fully complies with the tribunal’s equal pay audit order.

In terms of financial implications for business, our analysis of employment tribunal figures over recent years indicates a downward trend in equal pay claims that are successful after a substantive employment tribunal hearing. Based on these figures and taking account of the exceptions and exemptions contained in the regulations, we have estimated that an average of only two or three equal pay claims a year are likely to result in the imposition of an equal pay audit order. This means that the overall upfront cost to business of these regulations is likely to be low. The average cost of conducting an audit by a medium-sized employer has been estimated at around £13,000, so if three audits were ordered in a year the appropriate cost to business would be less than £40,000. It is important to point out that this cost will fall only on those employers who have been found to be in breach of the law. Law-abiding employers will not have to bear this burden. Our assessment of costs has been validated by the Regulatory Policy Committee.

We do not intend to publish new guidance on equal pay law or on how to conduct an equal pay audit. This is because a substantial amount of information and advice is already available for employers on both these topics; we do not want to replicate what already exists. The Equality and Human Rights Commission has published a statutory code of practice on the equal pay provisions in the Equality Act 2010. It has also published guidance on how to carry out equal pay audits, including a toolkit to aid employers wishing to conduct such audits on a voluntary basis. Moreover, the EHRC has recently published two new guidance documents on gender-neutral job evaluation schemes, which will assist employers’ understanding of the essential requirements for job evaluation schemes. In conjunction with the British Chambers of Commerce, the EHRC has also produced a quick-start guide to providing equal pay.

In conclusion, achieving transparency in pay systems is crucial to ensuring that male and female employees who do the same or equal-value work for the same employer are paid the same rate for the job that they do. These regulations and the message that they send to employers are a significant means of bolstering pay equality in the workplace and providing a further impetus to the steady, long-term reduction in the gender pay gap. I commend these regulations to the Committee.

[Baroness King of Bow (Lab)]

My Lords, today will see a coach and horses arrive in Parliament. That is not so unusual, but on this occasion I am sad to say I fear it will ride through the spirit of the law on equal pay. The Equality Act 2010 was a landmark piece of legislation that simplified, strengthened and extended protection from discrimination.

As we know, one of the most persistent areas of inequality, first addressed over 40 years ago, is the gender pay gap. The Equal Pay Act 1970 sought to remedy the fact that women were systematically paid less than men. However, instead of it narrowing, last year the gap actually widened slightly, by 0.1%. The figure might seem small, but not only are we riding in entirely the wrong direction, but we are witnessing significant hidden regional and sectoral variations. In London, for example, women are now paid 13% less than men, while across the UK women in full-time employment in the private sector are paid a staggering 19.9% less than their male counterparts.

Against this backdrop we need firm leadership from the Government. Given the Government’s pronouncements on equality, I was hoping they would take all the measures necessary to address what I am sure everyone here recognises is blatant discrimination in the workplace against women. After all, this gender discrimination also impacts hugely both on the children who women care for and pensioner poverty once those women retire.

Reading through the regulations we are debating today shows this clearly is not the case. In effect these regulations turn a blind eye to many breaches of equal pay. Let me set out exactly why I feel this is. Equal pay audits are an extremely important mechanism for bringing the gender pay gap to light. Essentially, where companies have broken the law and a tribunal orders an EPA, the lights get switched on and for the first time everyone can clearly see what is going on. Cloaking pay structures in darkness—which is one of the reasons this problem has dragged on for so long—does nothing to solve the problem. It just increases a company’s liability at some future employment tribunal. The best companies carry out voluntary EPAs. Most, however, do not.

The Government have set out circumstances in which an audit must not be ordered and the Minister set some of them out. According to Regulation 3(1)(d), this is where,

“the disadvantages of an audit would outweigh its benefits”.

However, this wording is so broad it gives employers a blank cheque to argue that an EPA would, on balance, in their view, be disadvantageous. There is no guidance, as far as I am aware, on how the disadvantages and benefits are to be assessed. The disadvantages put forward by an employer are likely to be cost-related and, if you look at what has happened to date in employment tribunals, employers are, unfortunately, likely to exaggerate the costs of doing an audit. Quite often we find that employers who have broken the law portray employment legislation as dastardly red tape. Where the costs of doing an audit are significant, it is likely to be because there is a high risk of equal pay breaches. This in turn is due to no transparency in pay, no clear and up-to-date job role profiles, no method for assessing where jobs are of equal value and no clear reasoning or objective systems for determining pay.

In other words, there is no proper management, no transparency and no accountability. Of course, this will make identifying differences in pay for those doing equal work—as well as the reasons behind those differences—particularly difficult to work out. This is the real world, so I would be grateful if the Minister could give us some real-world examples of the circumstances covered by Regulation 3(1)(d) when a company is saying that the disadvantages will outweigh the cost. The Minister gave us one example, I believe—for instance, where a company feels that the cost could push it over the edge and make it bankrupt.

However, I really must interrogate this cost issue a bit further. The Government are exempting micro-businesses and new businesses, because this is a burden, again presumably mainly on the grounds of cost. The TUC argued against any such exemption—of course, we would expect that—but its argument is extremely compelling. It argues that the right to equal pay applies regardless of the size or age of the business. Surely this must be right. Think about it if we were talking about black people. Can you seriously imagine the logic of saying, “It’s not fair to pay black people less than white people for work of the same value, therefore we won’t allow big business to get away with it, but small business can’t be burdened with equal pay legislation, so if they break the law we’ll just leave it at that”? It is absurd and simply does not hold water.

The Equality and Human Rights Commission has even produced guidance on how to do equal pay checks for small businesses. The EHRC estimates that for a business twice the size of a micro-business—that is, one with 20 people and, say, five job roles—an EPA will take half a day to carry out. For a micro-business half that size, we are looking at about two to three hours’ work. If you are talking about a business with three or four employees, it would be even less—you could be talking about one hour’s work. How hard is it to get out five pay cheques and look at them over a year along with the job descriptions? It is frankly not good enough to say that this is a burden on anyone.

17:00

But, obviously, it is a burden on women. Over a lifetime, the pay gap burden for women in full-time work stands at £361,000. The Government’s foot-dragging might be less worrying if we were making swift progress. Last Friday’s headline in the Evening Standard was “Pay gap widens”. This has been going on since 2010. UK women are now missing out on an extra £177 a year in their pay packets because we are no longer under this Government making the same rate of progress to close the gender pay gap as we made under the last Government. On gender issues in general, the UK ranks 18th in the world behind the Philippines and Nicaragua. Within this context, I really would appreciate a bit more urgency. We need to close loopholes in the law, not widen them. That is why I say a coach and horses seem to be in sight.

The regulations mean that a micro-business—that is, a business employing fewer than 10 people—that has broken the law on equal pay will not have to do anything to remedy it and prevent it from happening in future. A large number of women in the private sector will be in such micro-businesses, and the private sector is where the largest gender pay gap remains. The regulations therefore do nothing to improve the situation where the biggest problem persists.

Regarding different sectors within the same business, the regulations also do nothing to remedy the gender pay gap. A bank is likely to have women in call centres on low pay, but the same bank will treat its corporate services separately, where pay is higher even for low-skill jobs. For example, it will most likely pay its security guards in Canary Wharf more than women working in its call centres. It might audit both sectors but without comparing the EPAs, so the gender pay gap remains neatly hidden. Again, this does nothing to improve things or take us in the right direction. It feels to me as if it is going against the spirit of the law which the Government say they support.

Let us look at the public sector equality duty from the same Act. The Equality and Human Rights Commission has responsibility for enforcing this and was putting together a statutory code of practice, but, as the House of Commons Business, Innovation and Skills Committee highlighted in its report Women in the Workplace, it has been prevented from doing so because the Government feel that further statutory guidance may again be too much of a burden—this time on public bodies. We are concerned with all these poor, burdened organisations—public bodies, small businesses—yet we are not really tackling the underlying issue that women in Britain today in the private sector are still paid 19.9% less than men.

I have a few more questions. The House of Commons Business Select Committee, a cross-party of group of MPs, states:

“The Government should give a clear statement of support for the EHRC in exercising these duties”.

That is the general problem that we have: there is no clear statement of support; there is no clear help to move us in the right direction. Either this SI is not written clearly or it is setting out to obfuscate matters. I am not the only one saying this. The Minister mentioned that the Joint Committee on Statutory Instruments drew the SI to the special attention of the House, saying that the regulations “require elucidation”. Yes, they really do.

I mentioned the issue around definitions of different operations and what counts as a single business and what is deemed part of a bigger business. It would be helpful if the Minister could write to me and set out what the situation is, for instance, for the financial sector business where you have low-paid women in call centres and security guards who may be earning more. How that does that play out under the regulations?

I thank the Minister for the explanation that she provided. The last few areas I want to ask the Minister about concern, first, financial penalties. The financial penalties for not carrying out an audit are frankly risible. The sum of £5,000 is very small when compared with a potential equal pay liability of a large employer that has repeatedly failed to address the discrimination in its pay systems or pay practices. We have seen that from some of the large equal pay settlements against some public sector employers in the last decade or so, which often ran into the millions. So how is £5,000 going to make a difference? Why was the maximum not set at a higher level and employment tribunals given discretion, depending on the individual circumstances, to impose a penalty that fitted the scale of both the business and the potential equal pay breach?

Can the Minister also tell us how many orders she expects to be made each year? I was told—I am sure that this cannot be true; perhaps she can enlighten me—that it might be fewer than 10. We are really talking about a tiny number. We are talking about the equal pay claims that get through the tribunal system that win and, even at that point, when the employer has been found to be in breach of the law, we are looking for ways to get them off the hook. I implore the Minister to see whether she can give us any more assurances on this area, because as the regulations stand they will have a limited effect on reducing the gender pay gap. In fact, they may not have any effect, if all these loopholes remain in place.

Can the Minister also remind us where we are on implementing Section 78 of the Equality Act—that may well have been done; I am not saying that sarcastically —or on removing the need to retain the power in Section 124(3)(b) of the Equality Act, which would enable employment tribunals to make wider recommendations? It is all about trying to take more action to get a better result in the context that Britain is slipping backwards on this issue.

In conclusion, if the Minister is really committed to ending pay discrimination against women—and I am certain that she is—can she tell us what earthly justification there is for a 10-year exemption period for micro and new businesses? Can she review that decision? Let us remember that the EPAs are good for business: they mitigate future liability and increase retention rates. In micro-businesses they can take as little as one hour to complete. Let us remember, too, the most fundamental point of all. Every employer in Britain is required to pay equal pay. No employer, large or small, should be breaking the law simply because a woman does the job. I hope that the Minister will be able to reassure us that this is not a retrograde measure to exempt smaller businesses from equality law, because if it were—and that seems to be where the regulations are heading—that really would be a backward step.

[Baroness Donaghy (Lab)]

My Lords, I think it was 10 years ago that I sat on a Government working party chaired by Bob Mason to see how we could make the Equal Pay Act more effective. Central to the recommendations that we made were equal pay audits and the importance of having a transparent pay system. We estimated at the time that it would take about 50 years to obtain equal pay. I looked carefully at the Explanatory Notes for this particular regulation and I thank the Minister for pointing out that the gaps still are very serious. In the build-up the Explanatory Notes accept that the issue of equal pay has an impact on economic growth. It goes on to say that the Government intend to do something about it in these regulations, so I got terribly excited. But then I looked at the impact assessment, which estimates that an average of two equal pay claims will be brought each year. The Minister was so embarrassed by that that she said “two or three” would be brought. As I say, it is estimated that an average of two or three equal pay claims a year may result in the imposition of an equal pay audit order—that is out of 23,638 equal pay cases that were brought in 2012-13. That really is a nut to crack a hammer, is it not?

It is important that the Government realise what message they are giving out about topping and tailing the issue of equal pay for women. We have the noble Baroness the Leader of the House who does not yet enjoy equal pay and we are now to have small businesses and new businesses possibly not being followed up through the law. That sends the wrong signal about equal pay. Will new businesses include those that start up again after bankruptcy, and will there be any qualifications around that? Some companies seem to make quite a habit of that. They start up anew when it suits them. It is important to know what the impact will be on so-called new businesses which are really only starting up again under a different name. Further, does the Minister really think that these regulations will do anything to narrow the pay gap? I have my doubts when the estimate is an average of two cases per year.

[Baroness Northover]

Well, my script says that I am very grateful to all noble Lords who have contributed to this debate, which has been so constructive and considered. However, I can then go on to say that we have been clear, as have all those who participated, that paying women less than men for doing the same, similar or equal value work is totally unacceptable and therefore must be tackled head on. If women are ever to realise their full potential in their chosen career, they must be paid the same as their male counterparts. We believe that these regulations are an important step in the right direction. They will ensure that employers who have been found to have breached equal pay requirements have transparent pay systems where hitherto they have not.

I shall turn to the various questions which have been put to me by noble Lords to see if I can answer some of them. I will follow up my remarks in writing if I do not cover them all. I start by addressing the contribution of the noble Baroness, Lady King. She quoted the figures that were used by the noble Baroness, Lady Thornton, in an Oral Question on 25 June. We had a little discussion back and forth. The previous Government, like this Government, rely on a particular set of figures from the Office for National Statistics published in the Annual Survey of Hours and Earnings. The previous Government and this Government share the view that these are the most robust figures. On the basis of those figures, there is not the falling-off that the noble Baroness, Lady King, mentioned.

There are problems with the set of figures that the noble Baroness, Lady Thornton, and now the noble Baroness, Lady King, have used in the sense that they are not as comprehensive and they are self-reported, whereas the other figures are derived from PAYE and HMRC information. There are very good reasons why the previous Government and this Government both use the ONS figures. However, if one uses the figures referred to by the noble Baroness—I have asked my noble friend Lady Jolly to print out for me what I was given before—one of the things I find quite striking is that the noble Baroness mentioned that pay for women working full time fell by 0.1% for the quarter. These quarterly figures fluctuate considerably, so that the previous quarter saw a 0.4% rise. I do not claim that that is a true representation of the situation because I do not claim that the 0.1% fall is a true representation of the situation any more than would the previous Government, under which the noble Baroness was the Minister. They, too, would not have decided to use this particular set of figures. I know that her colleagues in the other place quoted them, but I suggest to her that she looks again at the Office for National Statistics figures and works out the ones that she should rely on.

17:15

[Baroness King of Bow]

I thank the noble Baroness for raising the subject of statistics. For the sake of clarity, I should say that the figure that I gave of 0.1% was for last year, 2013, and not the last quarter. However, I will go away and verify that, although I got it from two different sources. In general, could the noble Baroness tell us whether she feels that we are moving in the right direction in terms of the gender pay gap?

[Baroness Northover]

The figure that the noble Baroness gave was actually for the last quarter, as she will probably find out when she investigates.

One thing that I find striking and encouraging is that the gender pay gap between men and women under the age of 40 who are working full time has narrowed considerably. The difference in the gender pay gap is for those above that age and those working part time. One reason why there is a major difference in part-time work is the type of work that men and women are in. We know that equal numbers of kids are going through school and that often girls come out better qualified. More are going to university, but they are grouping in different subjects. Some of those subjects lead to better-paid careers, which is something that we, like them, seek to address—I am referring to the STEM subjects.

The most important thing is the caring responsibilities that women often have, which is why you start to see this difference as you go through life. That is why in some ways it is quite encouraging to see that the gender pay gap has narrowed so much for those up to the age of 40, although we need to do much more to make sure that that carries on through.

[Baroness Donaghy]

I apologise to the noble Baroness, but I just wanted to query the impact on workers under 40. It might sound like good news, but it might be because men are being paid less in this low-wage economy. Does the noble Baroness have any more information to reassure us on this point?

[Baroness Northover]

I think that the noble Baroness would be reassured by the progress being made in this regard. I will probably need to write to her with the details but, again, I looked at this and I did not see the negative trends that she may be hinting are there. I will write to her and clarify that.

I am glad that the noble Baroness, Lady King, welcomes the audit. Obviously, that follows on after cases have been lost by employers. She is quite right, as is the noble Baroness, Lady Donaghy, to emphasise that it is in the interests of the companies and for the health of the companies to make sure that their employees are paid fairly between the genders. If they are not, there will not be a happy and effective workforce. I think that forward-looking companies recognise that now; indeed, they should recognise that it is in their own interests to make sure that this moves forward. If they lose such cases, they need to take action to put it right.

The kind of pay audits that we are talking about help to shine the spotlight that the noble Baroness mentioned on this. She mentioned the exceptions and seemed to imply that a company could say to the tribunal, “We can’t afford to do this”. I hope that she will be reassured by the fact that the tribunal, not the company, decides whether there are reasons for exemptions. I hope that I illustrated, in listing the four cases where there might be an exemption, how tightly drawn that is. I gave an example in each case of the kind of thing that we are thinking about there. Clearly, if they persist—suppose that they said they were about to go bankrupt and the tribunal thinks that that is the case, but then another case is brought and it turns out they had misled them—they are obviously in a much weaker position.

I reassure the noble Baroness, Lady King, that new businesses only have that exemption for the first year, not for 10 years. She grouped them together, but the committee asked for further elucidation about micro-businesses, which I hope that we have provided.

[Baroness King of Bow]

Before the noble Baroness moves on, as I understand it, micro-businesses and new businesses will be exempt for 10 years.

[Baroness Northover]

No, I will clarify that. As I understand it—I am sure I will be corrected if this is not the case—new businesses are protected for one year only. Micro-businesses are protected, potentially, for 10 years, but providing that they remain micro-businesses. I hope that clarifies the position. I take it the noble Baroness would rather that is not the case, but that is the settlement we have reached on this to try to ensure that micro-businesses do not have disproportionate burdens placed on them. However, they are obviously still subject to the law, and their employees are protected by the law. We are talking here about whether the audit would follow the loss of such a case.

The noble Baroness thought that the penalty of £5,000 should be much higher. The penalty is specified in primary legislation, so we cannot impose a greater penalty in the regulations which follow on from that. It derives from the Equality Act 2010, which she no doubt played a part in, as did the noble Baroness, Lady Thornton. When the Enterprise and Regulatory Reform Act inserted this penalty into that Act, the party opposite did not oppose it.

[Baroness King of Bow]

Would the noble Baroness then agree that we have all got it wrong? Surely it does not make sense for the penalty to be less than the cost of continuing the breach.

[Baroness Northover]

We will all, no doubt, be monitoring this to see what the effect is. One of the things which happens to a greater extent these days is that people put information about the place they work on social media. This is not the kind of thing which any company wishing to attract talent wants to have flagged among potential employees. Nobody will want to head down the route of losing equal pay cases, and they will certainly not want to have an audit thereafter which shows further challenges within the company. I am sure that we will all monitor this to make sure that it is heading in the right direction.

Similarly, not having a pay audit may make micro-businesses that have lost cases more vulnerable to further claims. Again, I am sure that those businesses will not want that to happen.

[Baroness King of Bow]

I thank the noble Baroness for her indulgence on this, but are these regulations not setting up a scenario where the same employer can breach the same law again and again, and never be forced to take any action? There is no sanction, even if they are ordered to take an equal pay audit and choose not to.

[Baroness Northover]

I am suddenly inspired to say that the regulations allow the tribunal to apply a £5,000 penalty repeatedly if the employer remains in breach. Therefore, it could have quite an effect cumulatively. I hope the noble Baroness will be somewhat reassured that there is a possibility of that follow-up if they are not taking action. I think that I have addressed most of her questions.

I now come to the main points raised by the noble Baroness, Lady Donaghy. I agree absolutely with her support of the notion that unequal pay does not help the business or the economy. That has to be a major incentive for companies to ensure that this moves forward. I do not think I have an answer to what happens if a company goes into bankruptcy and then resurfaces; maybe I have and I have buried it somewhere.

[Baroness Donaghy]

Perhaps the noble Baroness would write to me about that.

[Baroness Northover]

That is extremely kind of the noble Baroness. She asked me quite a bit about narrowing the pay gap. I hope that I have helped to address some of those. This is obviously a lever to help in these cases. It is very important that the law is there, that we ensure it is implemented and that companies are heading in the right direction. However, we all know that there are much wider reasons why this is difficult to shift. We are in line with what is happening in northern European companies—many more women are working than in the eastern European and southern European countries where, curiously enough, there is a narrower pay gap. That is because many women are not working. We share that particular challenge with our northern European neighbours, but we all need to ensure that we take forward the kind of support and legal changes that help to underpin women’s ability to participate in the labour force as equal to men’s. We also need to ensure that we tackle instances where there is genuine discrimination.

[Baroness King of Bow]

May I ask the noble Baroness what I hope is one last question? How many cases do the Government envisage being brought in circumstances where businesses will be asked to carry out an equal pay audit?

17:30

[Baroness Northover]

Indeed, the noble Baroness, Lady Donaghy, picked up on what I said in my speech; it is anticipated that it might be two to three a year. If, in due course, we see that this regime is not tight enough, I am sure that we or any other Government would keep that under review. However, these kinds of examples often have a beneficial effect on other companies. The last thing they want to do is have that spotlight on them, either through having lost a case or having their pay audited. This has to be about greater transparency, which can be demanded by a number of women, right up through companies, rather than being grouped at the bottom. I would not be at all surprised if employees in different companies will expect that kind of transparency of modern employers. I do not know whether there is anything else that I need to answer in that regard, but I hear what has been said.

I have tried to answer most of the points that the noble Baronesses have raised. I hope they will accept that it is extremely important to send the message to employers that it is in their interests and everybody else’s to have gender equality in pay in their workplace and that they have to think very seriously about that so that they are not in breach of equal pay law and avoid equal pay claims and, ultimately, the requirements of these regulations. In some ways, it would be good if these regulations did not need to be implemented at all and we just saw a transformation—that would be the best result. However, failing that, I commend the regulations to the Committee and hope that it will approve them.

Motion agreed.