Ethnicity Pay Gap Reporting
(3 years, 1 month ago)
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Lord Boateng
To ask Her Majesty’s Government what assessment they have made of (1) the benefits of mandatory ethnicity pay gap reporting, and (2) the joint call by the Confederation of British Industry, the Trades Union Congress, and the Equality and Human Rights Commission, for the introduction of mandatory ethnicity pay gap reporting.
Lord Boateng (Lab)
My Lords, the case for minority ethnic pay gap reporting is not only a profoundly moral one, it is intensely practical. Every person, regardless of their ethnicity or background, should be able to fulfil their potential at work. That is the business case as well as the moral case:
“Diverse organisations that attract and develop individuals from the widest pool of talent consistently perform better.”
Those are not my words. I am adopting them, but they are the words of the Chartered Institute of Personnel and Development, and they ring true.
The Government’s own review Race in the Workplace, conducted by the noble Baroness, Lady McGregor-Smith, estimated that having full representation of ethnic minority workers in the labour market would help reduce poverty across the country significantly and benefit the UK economy to the tune of about £24 billion a year—that is about 1.3% of GDP. The reality is that poverty is a fact of life for all too many in the black and ethnic minority communities. BAME groups experience a poverty rate that is twice as high as that of their white counterparts. Research indicates that poverty rates are about 50% for Bangladeshi groups, 47% for Pakistani groups, 40% for black groups, 35% for Chinese groups and 25% for Indian groups, compared with 20% for white groups in the UK.
The poverty is real. The challenge to British industry to improve its productivity, and to grow our economy in a post-Covid world, is also all too apparent; hence the need for the Government to act now on this issue, given that they consulted on the ethnic minority pay gap as long ago as October 2018. They closed that consultation in 2019, yet no response has ever been published. That is really inexplicable, given the degree of public concern about this issue.
Dianne Greyson is to be congratulated on her campaign, which produced over 130,000 signatures. That was what led to the debate on the issue in the other place. The Office for National Statistics has demonstrated only too clearly the need for the better collection of data. In addition, we now have the Confederation of British Industry, the Trades Union Congress and the Equality and Human Rights Commission all making the case for better data and for mandatory reporting in this area. The reason they do so is that if we do not successfully address the challenges of diversity in the workplace and the damage done to our economy by not securing the proper, fair and equitable promotion and retention of black and ethnic minority workers, with decent and fair rewards, the price to pay is all too high.
The challenge for the Government is to come up with a response to the questions raised. It really is not good enough to put this in the “all too difficult” box. Yes, we know there are challenges and trade-offs to be made in obtaining data that takes this issue forward; however, as the advances that resulted from the collection of data on gender have demonstrated, we know that, where we do have data, the transparency and the light of publicity thrown on glaring disadvantage and disparity change the situation on the ground—which gives hope to those currently prevented from realising their full potential.
Importantly, it also recognises that, out there in the wider world, it is already beginning to happen. There are some really good examples of best practice among employers, working with their trade unions and statisticians qualified to assist them in obtaining data that is really making a difference and linking that data to both a narrative that demonstrates what the company is doing to improve the situation and an effective strategy and policy to get them to a better place. Good examples are there. Network Rail and John Lewis are very good examples, and there are other employers showing the way.
But all employers are asking for better guidance. They are all saying, “Look, we want to produce data, but we need to be sure that we are all producing data on the same basis and we want to know that the Government are on our side and supporting what we are doing.” The silence from the Government is deafening, and also quite inexplicable when you look at what their own reviews demonstrate. It is inexplicable too in terms of an agenda that is about levelling up and improving everyone’s opportunities, as this is a UK-wide problem. The ethnicity pay gap in Humberside is something like 12.7%; in London it is far worse, at 23.8%. It is 10.3% in Scotland, where the good news is that its Government are now actively promoting and supporting the collection of this data.
So the question for the Government is to respond to the legitimate points made by the Trades Union Congress, the CBI and the Equality and Human Rights Commission. When asking for mandatory reporting and for the Government to seek to build on the success of gender reporting, they made the point:
“Reporting, done well, can provide a real foundation to better understand and address the factors contributing to pay disparities.”
The Government have been asked—and still there is no response—to support further work on this by the CBI, the trade unions and the Equality and Human Rights Commission. Professional statisticians have come forward with advice and expertise on this. The ONS wants to see progress in making sure that its own data better contributes to the resolution of these issues.
So will the Government now set a clear timeframe to implement this? Will they work with interested parties to develop the tools and resources required by industry to ensure that employers are supported and workers are confident in disclosing data in advance of making reporting mandatory? This can be incremental; it does not have to be done overnight. It does not have to involve all employers employing more than 250 people at once; it can be done incrementally.
The Government have the answer to these issues in their own review. They have the capacity to respond to the challenge laid down by all people of good will on all sides of both Houses for this action to be taken. The time for talking is over; now is the time to act. That was the title of the Government’s own review—Time to Act.
The Lord Bishop of Bristol
I am grateful to the noble Lord, Lord Boateng, for raising this Question for Short Debate.
I know from my experience as the former Dean of York the significant positive impact gender pay gap reporting had on the implementation of inclusion policies in an institution which had previously been overwhelmingly male. Careful attention to the gender pay gap required us to focus continuously on developing opportunities for women, not least in our stoneyard among carpenters and stonemasons, where we achieved parity. We had equal opportunity for girl and boy choristers—but I admit that the back row of the choir presented more of a challenge.
Now in the diocese of Bristol, I am acutely aware of both the imbalance in the number of UKME lay employees and their recruitment to largely junior roles in my organisation—it is totally different from the surrounding population, to my shame. I hope that the Church of England might consider participating in a pilot study in preparation for this policy, as I understand that the law in this area is complex. There are challenges in drafting legislation or guidance and in the collection of data. I note these challenges and offer three suggestions for a way forward.
First, there is currently no legal requirement for companies to collect, share or publish ethnicity pay gap data, but I hope this can be changed. An illustrative precedent here is the 2016 higher education White Paper’s proposals to
“place a duty on institutions to publish application, offer, acceptance and progression rates, broken down by gender, ethnicity and disadvantage”
and to
“legislate to require those organisations who provide shared central admissions services … to share relevant data they hold with Government and researchers in order to help improve policies designed to increase social mobility”.
These proposals were enacted in the subsequent Higher Education and Research Act 2017.
Secondly, GDPR rules require that individual consent must exist to the collection and storage of personal data and its use for statistical analysis and other purposes by named organisations. Employers already collect data relating to other personal characteristics of employees, so it should not be impossible also to collect ethnicity data within the GDPR rules.
Thirdly and finally, where the total number of employees or the number of employees in a particular subcategory—for example, a particular ethnic group—is small, there is a risk that individuals and their personal data could be identified in published statistics. For example, if an employer has just five ethnic-minority employees, public reporting of the ethnic-majority versus ethnic-minority pay gap for this employer could inadvertently reveal the personal pay levels of those five ethnic-minority employees.
There are industry-standard methods of minimising the risk of inadvertently publishing data from which individuals and their personal data can be identified, which typically involve supressing the publication of any statistics relating to fewer than 10 cases. In line with this, provisions could be made to ensure that employers do not publish data relating to subcategories of employees in which there are fewer than 10 cases. However, employers could still be required to collect such data regardless of subcategory size, publish it in a more highly aggregated form so that no subcategory has fewer than 10 cases and share their data with a trusted third party, such as the ONS, which could analyse data provided by all employers and report results in a way that safeguards against disclosure of personal data or identities.
Given these mitigations, I support the requirement for larger enterprises to collect and publish data on the ethnic pay gap to bring about much greater equality of opportunity in the workplace and a greater sense of common humanity.
Lord Bilimoria (CB)
My Lords, I am the first ethnic minority president of the Confederation of British Industry. From the outset, I wanted to find a way to champion ethnic minority participation across all businesses. I congratulate the noble Lord, Lord Boateng, on initiating this debate at this crucial time.
I am proud to say that, in the midst of the pandemic, the CBI launched the Change the Race Ratio campaign in October 2020. This aims to accelerate racial and ethnic diversity in business across the board. Our founding partners included Aviva, Brunswick, Deloitte, EY, Linklaters, Microsoft, Russell Reynolds, Schroders, the Investment Association, Unilever, Business in the Community, 30% Club, City Mental Health Alliance and Cranfield Business School. It is open to all businesses and institutions, large and small, and aims to create change in the business community. I am proud to say that, a year later, we have 100 leading organisations as signatories, from BP to Diageo to Odgers Berndtson to Glasgow University.
Organisations sign up to four things. The first is to champion the Parker review, launched in 2017, which recommended that there should be one ethnic minority director on every FTSE 100 board by the end of 2021 and one on every FTSE 250 board by the end of 2024. Sadly, today 20 FTSE 100 companies do not have a single ethnic minority director and only 54 FTSE 250 companies have one ethnic minority director. We have a long way to go. Research undertaken by campaign signatory Green Park, chaired by Trevor Phillips, revealed that there are no black chairs, CEOs or CFOs in the FTSE 100. We need to make a step change.
Secondly, organisations sign up to increase racial and ethnic diversity in senior leadership. Thirdly, they sign up to be transparent on targets and actions and specifically to disclose ethnicity pay gaps by 2022 at the latest. Fourthly, they sign up to create an inclusive culture in which talent from all diversities can thrive. I remember a Harvard Business Review article entitled “Diversity Without Inclusion Is Useless”. I have seen this first-hand from my own business, Cobra Beer, which started with just two of us. We built a mini United Nations, employing people from all over the world, from different backgrounds and cultures, and with different mindsets. That combination created a buzz, which created innovation, which created growth. I am so proud of it.
The CBI has just launched its economic vision for the UK for the next decade, called Seize the Moment. This includes creating an inclusive economy. The noble Lord, Lord Boateng, quoted the review of the noble Baroness, Lady McGregor-Smith, which said that improving participation would add an extra £24 billion to the economy. That is a huge underestimate; the figure would be far greater.
Many companies are leading the way. Eversheds, for example, set a public target to reach 10% ethnic minority UK partners by 2025. Google has set a target to support black executives and achieve at least 30% minority representation on its executive team by 2025.
We have learned from the experience with gender—specifically the Hampton-Alexander review—and gender pay gap reporting that change does not happen overnight. Gender pay gap reporting is now mandatory and what gets measured gets done.
McKinsey data from 2019 shows very clearly that the top quartile of companies that embrace diversity and inclusion are 36% more profitable than the bottom quartile. Deloitte has conducted surveys that show that companies that embrace diversity and inclusion are more innovative.
The ethnicity pay gap is over 25% in many companies. This gap should not exist. It is unacceptable. At the CBI, we report our ethnicity pay gap. Our director-general, Tony Danker, said in this year’s report:
“We still have a long way to go to eliminate institutional and systemic barriers in our workplace. It is in this spirit that we are committed to reporting on our ethnicity pay on a voluntary basis. Like our members, we want to do all we can to create a fair and inclusive workplace where everyone can thrive.”
To conclude, building diverse and inclusive workplaces is not only the right thing to do but has a strong business case behind it. Diversity increases employee satisfaction, helps to retain existing staff, attracts new staff, reduces recruitment costs, increases productivity and helps companies to better represent the communities they serve. Will the Government agree that we should make ethnicity pay gap reporting mandatory? What gets measured gets done.
Lord Sikka (Lab)
My Lords, I thank my noble friend Lord Boateng for this much-needed debate and fully support his call for mandatory reporting.
The ethnicity pay gap reflects sedimented residues of colonialism and worker exploitation and must be eradicated. Disclosures are vital in giving visibility to unacceptable practices and paving the way for reforms. Well-managed businesses already have the relevant information, so the cost of disclosure is negligible. In any case, it would be a minuscule proportion of the amounts that these entities spend on public relations campaigns.
Mandatory reporting of the ethnicity pay gap and investigation of the related lack of diversity should be extended to professions, universities and other large entities. Only 140 of the UK’s 21,000 university professors are black. Only six of 800 partners at UK Magic Circle law firms are black. As has already been said, FTSE 100 companies have zero senior black executives at board level.
In 1987, the accountancy profession was the subject of a Commission for Racial Equality probe into racism in the recruitment process. It published a document entitled Chartered Accountancy Training Contracts: Report of a Formal Investigation into Ethnic Minority Recruitment. It promised to revisit the issue, but never did. Its successor bodies have not done so either.
While some accountancy firms have voluntarily disclosed ethnicity pay gap data, progress towards eradication of the ethnicity pay gap is slow. Most recently, black staff at PricewaterhouseCoopers are reported to be paid 41% less than white colleagues. Ernst & Young has an ethnicity pay gap of 36.7%.
There is a lack of diversity in big accounting firms. Last year, there were only 17 black partners among the top eight accountancy firms. Only 11 of the Big Four accounting firms’ 3,000 UK partners are black. Deloitte has one black partner, Ernst & Young and KPMG have two each and PricewaterhouseCoopers has only six. A July 2021 report by the Financial Reporting Council showed that disabled and LGBTQ+ citizens have virtually no chance of reaching a senior position in major accounting firms.
Will the Minister bring legislation to achieve the following six objectives: mandatory ethnicity pay gap reporting; directors providing binding plans to reduce the ethnicity pay gap and increase diversity; increased diversity and reduction of the ethnicity pay gap forming part of executive remuneration contracts; auditing of this data by trade unions and works councils, not accounting firms that cannot be trusted to deliver any honest audit; sanctions from the Government, including refusing to give public contracts to entities which are not reducing their ethnicity pay gap; and an annual report from the Government explaining how their policies are addressing ethnicity pay gap issues? I look forward to hearing the Minister’s detailed reply to these six suggestions.
Baroness Falkner of Margravine (CB)
My Lords, I am grateful to the noble Lord, Lord Boateng, for initiating this debate and for making such a powerful argument for what is potentially a game-changing enabler for ethnic minority participation in the economic reward system of this country.
I should begin by declaring an interest as chair of the Equality and Human Rights Commission, one of the signatories of the call for the Government to bring in mandatory ethnicity pay gap reporting in the workplace.
The House will know that the EHRC enforces the gender pay gap regulations and may well be the body charged with enforcement of the putative EPG regulations. Our experience of GPG is that the transparency that this collation of data has brought to employers is, they tell us, incredibly valuable. In the few short years that we have been doing this—we only started in 2017—we have seen the pay gap narrowed from 17.4% in 2019 to 15.5% by 2020. Alas, I fear that, as a result of the pandemic, it will increase for a short period; nevertheless, we are on that case.
Our research into ethnic pay inequality shows that there are multiple and complex factors at work, including occupational segregation, for women and carers particularly, the lack of flexible working and a serious lack of senior level representation. Additionally, we also found, after looking at the markers you would expect to see, that there were large gaps in the ethnicity pay data which were inexplicable to us. This suggests that there is still a level of discrimination in the economy and in workplaces in this country.
We recognise that measuring ethnic minority pay gaps is much more complex than for gender. We know that they vary by ethnic group, sex, age and whether individuals are UK or foreign-born. It is not simply the case that white British people earn more. The most recent statistics available show that while the majority of ethnic minorities earn less than their white British counterparts, Chinese, white Irish, Indian and Asian ethnic groups all had higher hourly pay, so it is not going to be a simple white versus others equation.
There are also stark regional variations, reflecting in part the different levels of diversity in parts of Britain. The ethnicity pay gap, which is the difference between ethnic minority and white British workers was 2.3% overall in 2019-20 but 23.8% in London, as the noble Lord, Lord Boateng, said, and only 1.5% in Wales. If we are the monitoring body for this, if it comes about, I can reassure Cumbrian hill farmers that we will not be coming for them.
Moreover, we appreciate that a binary reporting requirement similar to that for gender would potentially tell us relatively little about the particular barriers facing individuals or certain ethnic minorities or, indeed, suggest what responses are needed from employers. I very much support the call of the noble Lord, Lord Boateng, for a narrative alongside the reporting because that is the explanatory part, the analysis that gets us to where we need to go.
We welcome the Government’s consultation on extending the mandatory ethnicity pay gap reporting in line with existing gender pay gap reporting and await the outcome, but we feel that it is important to have a nuanced approach to this, and that tracking outcomes at key stages in the employment journey—recruitment, retention and progression—offers much greater insight into the specific barriers facing groups. It is also essential to ensure that any future reporting mechanism has large enough employee sizes to ensure the right to anonymity is preserved.
In conclusion, if the Government and large businesses are serious about ending race discrimination, this is the most effective way to make a real difference to the lives of ethnic minorities in this country. I look forward to the Minister’s response.
Baroness Prashar (CB)
My Lords, I thank the noble Lord, Lord Boateng, for securing this short but very important debate. He spelled out clearly both the moral and practical cases for ethnic minority pay gap reporting. It is a pleasure to follow my noble friend Lady Falkner. I agree with all she said. Her experience shows the importance of pay gap reporting.
The Commission on Race and Ethnic Disparities, which the Government set up, did not recommend statutory reporting of the kind in place since 2017 for gender pay. Do the Government accept its recommendation and the rationale advanced by it for not making ethnicity pay gap reporting mandatory? As we have already heard, following the publication of this report, the CBI, the TUC and the EHRC, among others, urged the Government to introduce mandatory ethnicity pay reporting.
The number of companies calculating their ethnicity pay gap voluntarily is growing. For example, Business in the Community found that one in 10 large companies reports on its ethnicity pay gap voluntarily, so there are good examples of how this can be done.
Those who are reluctant to report have advanced practical difficulties in gathering this data as a reason for not making pay gap reporting mandatory. Examination of these arguments shows that practical difficulties can be overcome; we must not make the best the enemy of the good. Arguments about complexity are not a convincing reason for not making pay gap reporting mandatory. Furthermore, pay gap reporting is not intended as a perfect statistical tool but a helpful snapshot as a guide for further probing and consequent action. As others have said, it not a silver bullet but one other important tool to assist action on promoting equality of opportunity.
The benefits of gathering and publishing this data with explanatory narrative are many. It prompts companies to examine and have conversations about what is happening in their organisations and take appropriate action. It catalyses action. As the noble Lord, Lord Boateng, said, the Government conducted a consultation on pay gap reporting in 2018-19. Will the Minister tell the House when the Government will publish the results of this consultation and their response to the report of the race disparity commission? Action is needed—we cannot wait any longer.
Baroness Blower (Lab)
My Lords, it is a pleasure to follow the noble Baroness, Lady Prashar, and I congratulate my noble friend Lord Boateng on securing this debate. I congratulate him in particular on his speech, which made an unanswerable case for ethnicity pay gap reporting.
Fairness on pay is a key issue for all workers, which is why the TUC was always in favour of gender pay gap reporting and why now the TUC, joined by the CBI and the Equality and Human Rights Commission, is in favour of ethnicity pay gap reporting. In the context of the rise of the Black Lives Matter movement, calls have clearly intensified for race equality and, as has been said, a petition to introduce mandatory ethnicity pay gap reporting was delivered to Her Majesty’s Government last July. This, of course, followed the McGregor-Smith review of race in the workplace already referenced. That, as my noble friend said, is emblazoned with the slogan:
“The time for talking is over. Now is the time to act.”
But the Government did not act on the recommendations that they should legislate to make larger businesses publish their ethnicity data by salary band to show progress. As is frequently the case, the Government consulted and found difficulties, and the results of this consultation have not, in fact, been published.
One of the difficulties put forward, as I understand it, is the issue of sample size and workplace segregation. However, Professor Susan Milner of the University of Bath says:
“Pay gap reporting in its current form”—
bear in mind that 11% of companies do produce data—
“is not meant to be a robust statistical tool. It provides a snapshot of workforce composition and pay at any given point.”
The point of pay gap reporting is to oblige employers to examine their data and work out what disparities might exist. This is why the National Education Union conducts a survey of pay, and while it does not specifically conclude that discrimination is taking place, it provides figures which the employers of teachers should perhaps consider. It is the largest database of teacher pay data, given that the DfE does not collect meaningful data on this basis. Headlines from that recent survey include that 85%—not enough, in my view—of white British teachers had received the national recommended cost of living award, but even worse, appallingly, only 77% of other ethnic minority teachers had received it. Only 7% of white British teachers were denied pay progression, but 11% of other ethnic origin teachers were so denied. In fact, in finer detail, 15% of Indian teachers and 14% of African teachers, as self-identified in the survey, had not received this pay progression. At the very least, these figures suggest a requirement to publish a policy on pay progression at school level in every school.
I close my remarks by returning to Professor Susan Milner. She concludes that while ethnicity pay gap reporting will provide an imperfect picture, it is still a much-needed one that organisations can learn from to improve their employment practice. At a time when there is evidence of worsening employment conditions for people from black and ethnic minority backgrounds due to the pandemic, government action is more necessary than ever. I believe that she is right. I hope the Minister can offer some hope for action.
Baroness Blake of Leeds (Lab)
My Lords, I join other Members in congratulating my noble friend Lord Boateng on his well-informed and incredibly powerful contribution. I thank him for giving us all the opportunity to make such important contributions; I think we have all learned an incredible amount from the speeches that we have heard thus far. I thank my noble friend Lord Sikka for his. I am sure I am not alone in looking forward to the Minister’s response to his request to answers for his six-point plan.
Only last month it was reported that just 13 of the FTSE 100 companies report their ethnicity pay gap. The lesson learned from gender pay gap reporting, as we have heard, is that until it is mandatory it will not become commonplace. While the ethnicity pay gap is usually considered to be around 2% to 3%, if we delve further we find that there are much wider differences between groups. As we have heard, there are many complex reasons for that. We know that, unfortunately, until mandatory reporting is introduced, we will never have a full picture and full understanding of exactly what is happening, but shamefully, even now, we can recognise the gap in pay between many different ethnic groups, as the noble Baroness, Lady Falkner, so eloquently laid before us. We need better data but most of all we need action.
My noble friend Lord Boateng has rightly made the case for mandatory reporting. He is in good company: the CBI, the TUC—as we heard from my noble friend Lady Blower—and the Equality and Human Rights Commission have all declared their support, which is a very powerful coming together of different views. There can be no excuse for the Government’s delay: it is now time for the introduction of these new requirements. But they must go further than just mandatory ethnicity pay gap reporting. We also need to close the gap with a new requirement on employers to report and eliminate pay gaps. This can begin with the implementation of action plans to eradicate inequalities in the workplace, and must form a part of a wider strategy to end the poverty wages and insecure work that blight millions of lives and are holding back our economy. We have heard in the debate about the disproportionate impact of the Covid pandemic on ethnic minorities. We also know about the impact of poverty on children in our communities; I have said before that we know that a quarter of children under the age of 16 living in Leeds are deemed to be living in poverty, and 75% of those are living in working households. What do we actually know about the disproportionate impact on children from ethnic minorities affected by this?
The right reverend Prelate the Bishop of Bristol has very carefully talked about the work on the gender pay gap, and we heard from the LSE earlier this year that, since the legislation came in in 2017, there has been progress—but all of us know just how much work there is to do. Unfortunately, we have in front of us a real sense that the Government are dragging their feet on this issue, despite the well-documented public concern and the fact that good practice is evidenced in many of the workplaces that are doing good work in this area. Practical issues are raised as objections. We need to make sure that the Government issue guidance. I finish by asking the Minister: are the Government on our side and prepared to take the next steps in making ethnicity pay gap reporting mandatory?
The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)
My Lords, I thank the noble Lord, Lord Boateng, for this debate. I am sure that we all agree that it has been both interesting and informative, and I am grateful to all who have contributed. I make it absolutely clear that the Government are committed to building back better from the pandemic. A key part of building a fairer economy is ensuring that our businesses and other organisations reflect the nation’s diversity, from factory floor to boardroom. We know that some companies face challenges ensuring equal access and fair representation of people from all backgrounds in the workplace, but the picture is complex, and outcomes vary substantially between ethnicities and by gender within ethnic groups.
In 2016, the Government asked my noble friend Lady McGregor-Smith to examine the barriers faced by people from ethnic minorities in the workplace and consider what might be done to address them. One of her recommendations was that government should legislate for the mandatory reporting of ethnicity pay data. The government response said that, while we were persuaded by the case, we expected businesses to take the lead in reporting voluntarily.
One year on, it was established that some limited progress had been made. Given this outcome, we published a consultation on mandatory ethnicity pay reporting. The consultation responses raised a series of issues. Establishing a standard ethnicity pay reporting framework is considerably more challenging than was the case for gender pay gap reporting. There are genuine difficulties in designing a methodology that provides accurate figures and allows for interpretation and meaningful action from employers, employees and the wider public, so we have continued to work with businesses and other organisations to better understand the complexities identified through the consultation.
We are also considering the findings of the Commission on Race and Ethnic Disparities, which were published earlier this year. This very good report makes an important contribution to both the national conversation about race and the Government’s efforts to level up and unite the whole country. In its report, the commission pointed to the statistical and data issues that can affect ethnicity pay reporting and proposed a voluntary approach. It recommended that
“all employers that choose to publish their ethnicity pay figures should also publish a diagnosis and action plan to lay out the reasons for and the strategy to improve any disparities.”
It further recommended that
“pay data should be disaggregated by different ethnicities to provide the best information possible to facilitate change. Account should also be taken of small sample sizes in particular regions and smaller organisations.”
To support employers undertaking this exercise, the commission recommended that
“the Department for Business, Energy and Industrial Strategy … is tasked with producing guidance for employers to draw on.”
We are committed to taking action, but we want to make sure that we are doing the right things that will genuinely help to move things forward. Key to that is determining what it makes sense to report on and what use the data may be put to. The commission’s report and our further work with businesses and other organisations identify a wide range of technical and data challenges that ethnicity pay reporting brings.
First, there is statistical robustness. In 2019, the Royal Statistical Society argued for a minimum sample size per category of at least 100 in order to draw valid conclusions. The purpose of this was to ensure that the calculation of a pay gap statistic would be reasonably reliable when interpreted by a non-statistician.
Secondly, there is anonymity. It should never be possible to identify any individual from ethnicity pay gap analysis. This means that a sample size has to be large enough so that it is not possible to link a number of individuals of the same ethnicity to a particular pay band.
Thirdly, there is data collection and the important issue of business burdens. A survey of over 100 organisations by PwC in August 2020 found that almost 35% did not currently collect any ethnicity data, with half identifying legal and GDPR requirements as a barrier to collecting the data. Among those organisations that did collect data, around half said that they were unable to publish their ethnicity pay data due to poor or insufficient data driven by low response rates.
Fourthly, there is reporting on a binary basis. One way to mitigate low employee declaration rates is to combine all individuals from an ethnic minority background into a single group for reporting purposes, but such an approach risks masking the significant variations in labour market outcomes between groups, and therefore the relevance of any action plan.
Fifthly and finally, there are skewed results. Reporting at a more granular level risks results being skewed by particularly large or small pay values because of low numbers within particular ethnic groups. The uneven geographical distribution of specific ethnic groups complicates the issue further. All of this creates complex challenges when deciding how best to take forward ethnicity pay reporting.
The Government are committed to taking steps to help employers tackle disparities in the workplace. We are now considering in detail what we have learned from the ethnicity pay reporting consultation, our further work and the commission’s report, and we will set out our response in due course.
I will pick up some points from the debate. The noble Baroness, Lady Falkner, made some good points about ensuring that any guidance for or support to businesses is not bureaucratic but focused on the issues where they most need support. I agree with her that we should focus our efforts on some of the drivers of the pay gap. The noble Lord, Lord Bilimoria, raised some interesting views from the CBI. I agree with him on the importance of business being inclusive.
The right reverend Prelate the Bishop of Bristol made an excellent contribution, and I agree with some of what she had to say. There is something of a precedent for requiring organisations to collect, share or publish ethnicity data. I also agree that it is possible to collect and publish such data under GDPR rules, but I return to the point I made earlier: that we must be very mindful when developing our approach of the burdens that collecting and publishing the data might impose on businesses, and which are appropriate and would be impactful.
The noble Lords, Lord Bilimoria and Lord Sikka, both mentioned the Parker review, which was set up in late 2015 and published its recommendations in October 2017, the main target being to ensure that all FTSE 100 companies have at least one person from an ethnic minority background on their board by the end of 2021, and for the FTSE 250 to do it by 2024. Although the review was not formally commissioned by Ministers, BEIS monitors its progress by providing annual statistical updates on FTSE 350 companies. It is financially sponsored by EY. Sir John and its steering board have agreed to continue to engage with business leaders to encourage adoption of the recommendations.
I agree with the noble Baroness, Lady Blower, that EPR provides an imperfect picture of race and ethnicity in work, and this is one of the challenges that we are working through to find the right balance between data that is actionable and comparable and the business burdens.
Finally, the noble Lord, Lord Boateng, said that this was all in the “too difficult” box, but it is in fact a difficult challenge to develop a standard ethnicity pay reporting system. We will announce the way forward in due course, taking account of a range of reviews, including those of the Commission on Race and Ethnic Disparities, the CIPD and the CBI, all of which we are currently talking to about how best to support employers.
I finish by thanking the noble Lord and all those who have contributed to the debate today.