Employment Rights Bill (First sitting)
Tuesday 26th November 2024
(1 day, 14 hours ago)
Public Bill CommitteesEmployment Rights Bill 2024-26 View all Employment Rights Bill 2024-26 Debates Read Hansard Text Read Debate Ministerial Extracts Amendment Paper: Public Bill Committee Amendments as at 26 November 2024 - (26 Nov 2024)
The Chair
We are now sitting in public and the proceedings are being broadcast. Before we begin, I remind Members to please switch electronic devices to silent. Tea and coffee are not allowed during sittings. Date Time Witness Tuesday 26 November 2024 Until no later than 10.10 am The Confederation of British Industry; The British Chambers of Commerce; The Institute of Directors Tuesday 26 November 2024 Until no later than 10.40 am The Federation of Small Businesses; Startup Coalition Tuesday 26 November 2024 Until no later than 11.25 am The Chartered Institute of Personnel and Development; The Chartered Management Institute; The Happy Business School Tuesday 26 November 2024 Until no later than 2.30 pm UKHospitality; The Recruitment and Employment Confederation Tuesday 26 November 2024 Until no later than 3.00 pm Make UK; The Food and Drink Federation Tuesday 26 November 2024 Until no later than 3.40 pm DFDS; Nautilus International; The National Union of Rail, Maritime and Transport Workers Tuesday 26 November 2024 Until no later than 4.30 pm The Trades Union Congress; The Scottish Trades Union Congress; UNISON; Unite the Union Tuesday 26 November 2024 Until no later than 5.00 pm The Fawcett Society; Pregnant Then Screwed Tuesday 26 November 2024 Until no later than 5.15 pm The Civil Engineering Contractors Association Thursday 28 November 2024 Until no later than 12.10 pm Co-op; The British Retail Consortium; The Association of Convenience Stores Thursday 28 November 2024 Until no later than 12.40 pm The Union of Shop, Distributive and Allied Workers; Community Thursday 28 November 2024 Until no later than 1.00 pm The Resolution Foundation Thursday 28 November 2024 Until no later than 2.30 pm GMB; Prospect Thursday 28 November 2024 Until no later than 3.10 pm Professor Alan Bogg (Professor in Law, University of Bristol); Professor Melanie Simms (Professor of Work and Employment, University of Glasgow); Professor Simon F Deakin (Professor of Law, University of Cambridge) Thursday 28 November 2024 Until no later than 3.40 pm GAIL’s Bakery; DCS Group Thursday 28 November 2024 Until no later than 4.10 pm The Equality and Human Rights Commission; Margaret Beels OBE (Director of Labour Market Enforcement) Thursday 28 November 2024 Until no later than 4.40 pm Female Founder Finance; The Women’s Budget Group Thursday 28 November 2024 Until no later than 5.00 pm The Department for Business and Trade
We will first consider the programme motion on the amendment paper. We will then consider a motion to enable the reporting of written evidence for publication. Unless there are any objections, we will not sit in private to discuss how to go ahead with the questions; it is a waste of time. In view of the time available, I hope that we can take these matters formally.
Ordered,
That—
1. the Committee shall (in addition to its first meeting at 9.25 am on Tuesday 26 November 2024) meet—
(a) at 2.00 pm on Tuesday 26 November 2024;
(b) at 11.30 am and 2.00 pm on Thursday 28 November 2024;
(c) at 9.25 am and 2.00 pm on Tuesday 3 December 2024;
(d) at 11.30 am and 2.00 pm on Thursday 5 December 2024;
(e) at 9.25 am and 2.00 pm on Tuesday 10 December 2024;
(f) at 11.30 am and 2.00 pm on Thursday 12 December 2024;
(g) at 9.25 am and 2.00 pm on Tuesday 17 December 2024;
(h) at 9.25 am and 2.00 pm on Tuesday 7 January 2025;
(i) at 11.30 am and 2.00 pm on Thursday 9 January 2025;
(j) at 9.25 am and 2.00 pm on Tuesday 14 January 2025;
(k) at 11.30 am and 2.00 pm on Thursday 16 January 2025;
(l) at 9.25 am and 2.00 pm on Tuesday 21 January 2025;
2. the Committee shall hear oral evidence in accordance with the following Table:
3. proceedings on consideration of the Bill in Committee shall be taken in the following order: Clauses 1 to 4; Schedule 1; Clauses 5 to 19; Schedule 2; Clauses 20 to 28; Schedule 3; Clauses 29 to 72; Schedule 4; Clauses 73 to 98; Schedule 5; Clauses 99 to 110; Schedules 6 and 7; Clauses 111 and 112; new Clauses; new Schedules; Clauses 113 to 119; remaining proceedings on the Bill;
4. the proceedings shall (so far as not previously concluded) be brought to a conclusion at 5.00 pm on Thursday 21 January 2025.—(Justin Madders.)
Resolved,
That, subject to the discretion of the Chair, any written evidence received by the Committee shall be reported to the House for publication.—(Justin Madders.)
The Chair
Copies of the written evidence received by the Committee will be made available in the Committee Room.
We now come to the motion to sit in private. We have agreed not to, effectively, but I will give people the chance to object to the motion.
Resolved,
That, at this and any subsequent meeting at which oral evidence is to be heard, the Committee shall sit in private until the witnesses are admitted.—(Justin Madders.)
The Chair
If nobody objects, we will not sit in private before we start hearing from witnesses. Do any Members wish to make a declaration of interests in connection with the Bill?
The Parliamentary Under-Secretary of State for Business and Trade (Justin Madders)
I refer to my declaration in Register of Members’ Financial Interests as a trade union member.
Michael Wheeler (Worsley and Eccles) (Lab)
I also refer to my declaration in the Register of Members’ Financial Interests, and my membership of the Union of Shop, Distributive and Allied Workers and GMB.
Anneliese Midgley (Knowsley) (Lab)
I also refer to my declaration of interests. I am member of Unite and GMB.
Alison Hume (Scarborough and Whitby) (Lab)
I also refer to my declaration of interests and my membership of Unison and the Writers’ Guild of Great Britain.
Jon Pearce (High Peak) (Lab)
I also refer to my declaration of interests. I am a member of GMB.
Laurence Turner (Birmingham Northfield) (Lab)
I draw people’s attention to my declarations in the Register of Members’ Financial Interests. I am also a member of the Unite and GMB trade unions.
Alex McIntyre (Gloucester) (Lab)
I refer to my membership of the GMB and Community unions, and my previous membership of the Employment Lawyers Association.
Dr Marie Tidball (Penistone and Stocksbridge) (Lab)
I also refer to my declaration of interests. I am a member of the Community union, Unison and GMB.
The Minister for Equalities (Dame Nia Griffith)
I also refer to my declaration of interests. I am a member of the USDAW trade union.
Chris Murray (Edinburgh East and Musselburgh) (Lab)
I also refer to my declaration of interests. I am a member of the Unison and Community trade unions.
Justin Madders
Mr Stringer, I do not think that I actually mentioned my trade union memberships. For the record, the individual unions are Unite and GMB.
The Chair
Thank you, Minister. If any interests are particularly relevant to a Member’s questioning or speech, they should declare them again at the appropriate time.
Examination of Witnesses
Matthew Percival, Jane Gratton and Alex Hall-Chen gave evidence.
The Chair
Thank you. I turn to Greg Smith to ask the first question on behalf of the official Opposition.
Greg Smith (Mid Buckinghamshire) (Con)
Q
Jane Gratton: Let me just say that there is a lot in the Bill that represents what good businesses are doing already, but there are five areas where we have received concerns from members. First, on trade union access and ballot thresholds, increasing access and making it easier and quicker for unions to call strike action does not mean that the union is representative of the workforce, and does not improve the relationship with employers. From our members’ point of view, it simply makes it easier to reach an end point that nobody wants. They can see nothing in the Bill to reassure businesses that the relationship will be better, so we do not think that there should be any change to union access or ballot thresholds.
Matthew Percival: Our members support the idea of thoughtfully designed and appropriately enforced employment laws—a strong floor of rights that supports fair competition in the labour market. It is not as simple as saying that employment laws are bad for business; lots of them are very good. That is why we have supported a number in the past, as well as a number of the measures in the Bill, very much as Jane said for her members.
Your question encourages me to give a quick checklist of the top issues, in the order that they come up in the Bill. There are a number of areas of concern around the regulation of zero-hours contracts, which has less to do with zero-hours contracts and more to do with the issue of guaranteed hours within contracts—it is low-hours contracts as well.
We get a number of concerns about the removal of waiting days from statutory sick pay. We get concerns around the landing of probation periods during the initial period of employment, which are more about the tribunal risk than the sorts of processes that employers might put in place. It is the cost of demonstrating compliance, rather than having a good process, that is more of a concern.
In the redundancy space, we are quite concerned about the increase in the frequency with which people will be put at risk of redundancy and the greater uncertainty for people in that environment, and that there might be an unintended kickback for workers. In the fire and rehire proposals, there is a risk that we might be making it easier to make people redundant than to change contracts, so we might go too far and not find that landing zone where it is a last resort short of redundancy.
In the industrial relations space, there are a number of concerns similar to those that Jane outlined. A big one is that there has been a lot of focus on the trigger threshold for whether a ballot for recognition should take place. Between 10% and 2% is what the Bill outlines, but the far more significant change from employers’ perspective is the removal of a requirement for a sufficient level of support in the result of the ballot. There is a risk that it could, in the extreme, become a simple majority vote in which hardly anyone votes in a large workforce but it leads to recognition.
Alex Hall-Chen: I completely agree with what has been said so far. I would add that a key fear for us is the cumulative impact of all the 28 reforms in the Bill coupled with everything else that is happening in the employment space. Taken as a whole, the measures make hiring someone riskier and more expensive for businesses. Our research shows that businesses will hire fewer people as a result.
We polled over 700 business leaders on this topic in August and 57% said that the reforms would make them less likely to hire. I would say that the situation has actually worsened since then, given recent announcements around employers’ national insurance contributions, so the cumulative impact cannot be overstated. For the first time since October 2020 our data is now showing that more business leaders expect to reduce their headcount in the coming year than increase it. The Bill is a key reason for that change.
Greg Smith
Q
Matthew Percival: It is very difficult to put a number to it, because there are so many unanswered questions in areas where details are intended to be put into the Bill at a later stage. That leads to a wide range of potential estimates about the impact of a number of the measures. Work we are doing at the moment will give us updated figures on sentiment around a number of measures. We are looking to publish that soon, and I will make sure that we include those numbers in our written evidence.
Jane Gratton: The feedback we have had from members has been concern about increased cost, complexity and lack of flexibility to manage the workforce in the way that a business needs to. Members say that there would be a reduced hiring appetite were this legislation to come in, and that they would be less likely to recruit new employees due to the risk and difficulty, particularly under the day one rights, unless there were at least a nine-month probation period with a light-touch approach. There would be a preference for contractors and temporary staff, again to reduce the risk and avoid legal complications. To give some figures, 38% said that there would be a hiring freeze, 25% said that the Bill would result in less pay, and 30% spoke of less investment in their business. There would be significant risks and costs, particularly to small and medium-sized enterprises.
Alex Hall-Chen: In addition to considering recruitment levels at the higher level, we are also getting feedback about types of recruitment and the impact that the policies will have on that. We have had a lot of feedback, particularly with respect to day one protection against unfair dismissal, that essentially boils down to the fact that, under the current system, employers are very likely to take a risk on hiring a borderline candidate who may not have quite the right experience or qualifications, but they will now be much less likely to take that risk because the cost of getting it wrong will be considerably higher. I think there are really important questions about what that means for people on the fringes of the labour market, especially as those are precisely the people the Government need to get back into work to meet their 80% employment rate target.
Justin Madders
Q
On a more general point, Jane in particular said that a lot of the businesses you represent do a lot of the things in the Bill already. Do you think it is important that we have a level playing field so that good businesses are encouraged to treat their staff properly?
Jane Gratton: Yes. There has been a cautious welcome for some of the measures in the Bill—lots of businesses agree with the sentiment that it is about fair pay, security and non-discriminatory workplaces—but the question is around the proportionality of the changes that are being introduced in relation to the problem that the Government think needs to be addressed. From a business point of view, it is about the additional complexity and, in respect of some of the detail of the measures, the restrictions that the Bill will impose.
For example, on changing the “one establishment” rule, the feedback from members has been, “For every change, will we have to consult all our employees across all of our businesses, even if they are doing completely different things at different ends of the country, with different levels of skill and job role? It is disruptive for the business and unsettling for every employee.” It is about the detail. In principle we all want these things, but the detail of some of the measures and the impact they are likely to have is causing a lot of concern.
Matthew Percival: You are right to say there is a live consultation on a number of measures, and the consultations on a number of things are promised to come but have not started yet. That is why I resisted putting a figure on what it would currently cost, because there is a wide variance in what that could end up being. We are committed to trying to find a landing zone for the Bill that means that the Government can deliver their ambitions, which include the Bill not having a negative impact on the ambitions around growth or the focus today, outside this room, on the “Get Britain Working” agenda and an 80% employment rate. We want to stitch all those things together and find that landing zone.
It is a credit to you and to colleagues that the engagement we have had up until now has led to things like some movement on the recognition of the importance of a probation period. There is so much in the Bill and we have only really scratched the surface in terms of what we have been able to get into the detail of so far. We are hoping that through this process, and as the Bill progresses through Parliament, we are able to give the same amount of attention to the rest of the Bill.
Justin Madders
I can assure you of that, do not worry.
Alex Hall-Chen: I echo Jane’s point about there being quite significant support in the business community for parts of the Bill. A good example is fire and rehire: two thirds of IOD members agreed with the principle of outlawing fire and rehire. Where we have concerns is, as others have said, around not only proportionality but the detail. On fire and rehire, for instance, there is concern that it will make any changes to contracts, whether or not they are actually net positive for both the employee and the employer, much more difficult to achieve.
Justin Madders
Q
Jane Gratton: Employers know that a happy and engaged workforce is more productive. It is in their interest to make sure that they look after their workforces, and most businesses are good, caring employers. The worry with the legislation is that in trying to address bad behaviour by a tiny minority of businesses—of bad actors—the cumulative impact and cost of all this will have a negative impact on the majority of very good businesses. Again, it comes down to the proportionality. These are huge changes, and one concern is that they have been brought in at such pace—although we are very grateful to the Minister and the Department for the time they have been able to give us in terms of consultation—that there are things written into the Bill that our members do not feel they have had sufficient time to be consulted on, because of the pace of change.
I think we need further engagement on some of these key aspects, including the reference period for offering guaranteed hours and extending those things to agency workers. There is a lot of disquiet around how that would work, particularly for companies that offer seasonal work, such as Christmas and holiday periods. How does a 12-week reference period equate to that? It does not seem to work. It would be better to have a 26-week period, for example. There are a lot of things.
The other thing that has come up often is a real nervousness around removing all the waiting days for statutory sick pay. Again, employers are really on board with supporting people who have a long period of illness, but some of the feedback from members has been that it is the single day of sickness absenteeism that causes the most disruption and impact. Rather than its being day one, a lot of employers have said, “Could it be from day two? Can we pay from day two, so the Government meets us halfway?” The overwhelming response from businesses has been, “Can Government please minimise the additional cost of these regulations on all businesses, but particularly on small and medium-sized companies?”
Matthew Percival: Yes, there is a lot of confidence in the idea that employee engagement helps to boost productivity; that is why businesses make it a priority. I am not sure they believe that much in this Bill is going to increase productivity, though, because they are not convinced that much in this Bill is going to improve employee engagement.
To take a couple of practical examples, I already mentioned in the industrial relations space the importance of the recognition process, where there is a great deal of concern that, if you recognise a trade union that does not speak for much more than a tiny proportion of your workforce, and you elevate that voice ahead of the voice of the actual workforce, that is not going to boost employee engagement. Employers are happy to work with trade unions who are the representatives of their workforces, and it is right that they should do that, and it is right that, if there are any employers who will not do that voluntarily, there is a statutory process that can force them and bring them to the table. But in the same way that we have employment law not because every employer has negative intentions, but because there are a small minority who have the potential to abuse their power, it is also appropriate to regulate the actions of trade unions in the industrial relations space.
Another quick practical example within the zero-hours contract aspect of this regulation is that crafting the requirement for accessing guaranteed hours as something that employers need to be constantly calculating for all employees whenever they work beyond their fixed hours, and then making offers to people, some of whom would want to receive those offers and some of whom would not, seems to us the most administratively complex and costly way of delivering on the proposal. We think there could be two other constructions worthy of consideration.
One of those constructions could be a right to request framework, where there are good tests on when an employer needs to accept a request versus not, just as we have around flexible working currently. Or you could call it a right to have, if you like, but at the moment I have not seen a difference between a right to request that an employer has to accept other than in limited circumstances, and a right to have that you do not have the right to have if an employer meets the same test for limited circumstances. What really matters is not whether you call it a right to request or a right to have, but what the test is for when an employer accepts the request. That would minimise significantly the administrative burden, rather than calculating lots of offers for people who will not want to accept them.
A number of individual businesses have told us that, if the Bill is to go with the grain of the good practice that already exists within industry, they will monitor people’s hours where they already have mechanisms to do so, and there will be a trigger for a conversation between the individual and their line manager in the event that their hours regularly exceed the hours guaranteed in their contract. Those who have that policy in place tell us that, most often, that leads to no change in contract. The hours are picked up as extra hours, and the individual does not want to guarantee them in their contract. There will be occasions when the individual does change contract, but those businesses say that the majority of people in that situation do not want to change their contractual arrangements, so we are hoping to minimise the admin burden.
Alex Hall-Chen: I just want to emphasise that employers absolutely recognise the link between the two. That is why, in many cases, they are ahead of the legislation. A good example of that is flexible working: 90% of IOD members’ organisations already offer at least one form of flexible working to their employees.
The concern is about the scale of the changes and the costs associated with them. We know from the Government’s impact assessment that that may be as high as £5 billion a year, with the cost disproportionately falling on small and medium-sized enterprises. A frequent piece of feedback that we get from members is that they feel that the Government do not understand how difficult it is to run an SME at the moment and just how tight profit margins are. That is primarily where we are coming from. These changes are huge—to an extent, they are unprecedented—and will impact on those already very fine profit margins.
Steve Darling (Torbay) (LD)
Q
Jane Gratton: It is really important that there is a probationary period, and it should be at least nine months. Businesses ideally want a 12-month probationary period, not least because some individuals are required to undertake mandatory training, which takes 12 months or more. We could live with a nine-month probationary period.
The key thing is that there should be a light-touch approach during that period so that businesses are not discouraged from taking a risk on employees. Employers should not have to introduce very stringent performance monitoring from day one, which helps neither the employee nor the business. Having structure during the probation period is good, but businesses need to be able to end the relationship on the basis of ability or performance, as we do now. There should be no greater risk to an employer of an employment tribunal than there is currently during the probation period.
Matthew Percival: Typically, a business’s standard probation period is no longer than six months. However, that does not mean that it is appropriate to set in regulation a limit on probation periods of six months. That is important for us, because a common response of an employer who sees that an individual is not performing quite to the level that they would want to be able to confirm them in post is to say, “Okay, we have gone through our standard probationary period, but we are willing to continue to invest in you, offer you more support and training, and extend that probation period, rather than rush to a firm yes or no decision for confirming employment.”
It is important that the regulations do not prevent the employer good practice of being willing to extend someone’s probation and give them more time to adapt to work, particularly if we are thinking about the challenge of getting people back into work who have had a period out of work. That is a big public policy and economic priority at the moment. We are in the same camp: certainly no less than nine months, so that there is that extra time before an employer is forced to make a firm yes or no decision on confirming employment, but preferably 12 months.
Alex Hall-Chen: Similarly, the feedback we have had from members is that their probation periods tend to be between three and six months, but as the other panellists have said, given exemptions around training and the potential to extend probation periods, nine months would be the minimum and 12 months would be preferable. As to the specific process, the lighter-touch dismissal process is better. We have done research that suggests that even a light-touch dismissal process, as defined by Government at the moment, would not solve the issue. A third of our members said that it would not mitigate their concerns around this policy at all, and half said that it would only partially mitigate their concerns, so we remain worried about the impact that this policy will have.
Steve Darling
Q
Matthew Percival: If we were talking about staggering things, the way I would do it would be to start with areas where there is already cross-industry support and where workers, trade unions and businesses can already agree that there are areas where the Bill can be a helpful step in the right direction. To give a few examples, we have previously supported the idea that it is wrong that you should turn up for work expecting an eight-hour shift, be sent home after two hours and only be paid for two hours. There should be a right for compensation there. We have supported fixing that through legislation for years now. A Bill to bring that forward would be something we welcome and support.
We have previously supported removing the lower earnings limit within the statutory sick pay system. It feels like a hangover from when it was a publicly funded benefit rather than an employment right in a relationship between an employer and their employee. We have supported the extension around third-party harassment. We have supported what the previous Government were calling a single enforcement body and in this Bill is a fair work agency. Outside the Bill but within the wider “Make Work Pay” package, we have supported the introduction of mandatory ethnicity pay gap reporting and action plans to go alongside reports on gender pay gap reporting.
There are a number of areas where you can bring forward things in a way that can achieve consensus across social partners. But if we were staggering things, in a number of the other areas I would take more time to think how it actually will land. Beyond just staggering things, there are some aspects in the Bill—we have each touched on a number of them already so I will not repeat them—that feel like they are just a step in the wrong direction, and when the step in the wrong direction is made is less important than the direction of the step.
Jane Gratton: As I said earlier, there is lots in the Bill that we support, and there is lots that good employers are doing already. As Matthew said on the compensation of shifts, we certainly support that, and we would be very happy about the fair work agency to create a level playing field and measures around workplace equity. For us, it is about the difficulty that the SMEs will have in getting to grips with this. If you think about it, most will not have access to HR and legal support. They are going to need a lot of time to get to grips with this and to understand what is required of them. To get those processes in place, they are going to need a lot of guidance and support. We think ACAS and the tribunals system would need to be significantly boosted in their resources to cope with what we anticipate will be a lot of additional demands on them. On that very much phased approach, I would agree with Matthew about starting with the things we agree on and looking at the detail of some of the things in the Bill where we think more consultation is required.
Alex Hall-Chen: I would emphasise two factors for consideration in staggering, the first being cost. As we are all well aware, the additional costs that are coming up very shortly, particularly related to employers’ national insurance contributions, are substantial, so the more that increases to employment-related costs can be staggered, the better, such as around statutory sick pay. The other, to support what Jane said, would be around tribunal capacity. There is a particular concern that these changes, particularly around protection against unfair dismissal from day one of employment, will be introduced before the tribunal system has been sufficiently reformed to be able to deal with the influx of cases that will come with them.
Chris Law (Dundee Central) (SNP)
Q
Matthew Percival: No; it is that I think there is so much in the Bill that it is not a question of where we could do more. What is already on the table is far too much for businesses to be able to engage with in its entirety. And bearing in mind that the Bill is only one aspect of the Government’s agenda, I am already finding that it is very hard for our members to engage on the breadth of topics at the pace at which the Government hope to get engagement. To squeeze anything more in at this time would just mean another issue that cannot be properly considered before we would get to legislation.
That is not say that there cannot be other conversations about other topics at other times. There are aspects of “Make Work Pay” that are not in the Bill because they are being developed; a number of them are being discussed and consulted on outside of this Bill process to support the development of those issues. But I would not be suggesting there is a lack of urgency in any way for any of these things.
The best legislation will come from having a process that stakeholders have the capacity and engagement to contribute to, rather than feeling that they have to choose one or two things to engage with and ignore the rest, which then does not get proper attention.
Jane Gratton: I would agree. The reflection from members is that they are overwhelmed with all the changes that are being put in front of them through the Bill and the wider plan to make work pay. We have said from the outset, “Please take your time with this, consult carefully and make sure we get it right.”
The biggest concern we have with all this is the cost and complexity for SMEs. They are very much behind the Government in wanting to get 80% employment. They want to help tackle economic inactivity and bring people back into work. It is good for all of us to be able to utilise those skills and resources that are under-utilised at the moment, and to help people, and to go further to support people who may be on the margins of the workforce and need additional help. But SMEs cannot do that if they are faced with additional complexity and more restrictions on what they can do, and more risk of getting it wrong. It is the risk of getting it wrong that is the problem. Someone said to me, in respect of the harassment and the inclusion of the word “or” in terms of the reasonable steps that employers have to take, “I want to comply, but as drafted, I don’t know how I could guarantee that I am compliant.” It is that complexity that is the problem. I would say, “Let’s not go further right now; let’s do this at the right pace and bring employers with us.”
Alex Hall-Chen: I would agree with what others have said. I would add that if there are areas where more ambition is needed, it is around how we can make sure that the policies that will be implemented via the Bill are sustainable and can actually be implemented on the ground in business. That partly returns to the point I made earlier around the already creaking tribunal system, but also a recognition of the costs that this will have, particularly for SMEs. That is why, for instance, we have been calling for the reinstatement of the statutory sick pay rebate scheme for SMEs. That is where we would like to see more ambition.
Alex McIntyre
Q
The Chair
If the witnesses can be brief with their answers, we will fit one more question in.
Jane Gratton: A lot of our members do not use zero-hours contracts; they tend to be used in industries where they need that flexibility, and the feedback is that a lot of the workers who want zero-hours contracts want them to fit in with their own studying or caring responsibilities, or whatever it might be. Where the flexibility is mutually beneficial, that is fine and zero-hours contracts should be able to continue, but I agree with you that, if somebody wants a permanent contract, over a suitable reference period they should be allowed to have one.
Matthew Percival: This is one of those issues where we are looking for that landing zone I was describing. It is equally fair to recognise that there are some people who work on zero-hours contracts and do not want to, and others who do and want to continue to work on that basis because it suits them. How do we find a landing zone that supports both? The challenge is that, if our intervention is too blunt and makes it risky to allow people to work more hours than their minimum contract guarantees, it also increases the cost premium for employers of offering it to people who want it, as well as those who do not. Our challenge is how to find that middle ground that achieves both objectives, rather than being forced into a trade-off that potentially means making the experience of work worse for some people at the same time as better for some others. We are interested in more winners and fewer losers, rather than just different winners and different losers.
Alex Hall-Chen: Our research found that the majority of business leaders think zero-hours contracts have an important role to play but should be reformed. Our concern is about the detail rather than the principle.
Mr Peter Bedford (Mid Leicestershire) (Con)
Q
Matthew Percival: This is a question of broader context as well. We have already mentioned the changes at the Budget and how the impact of the threshold element of the national insurance changes in particular is concentrated in sectors that currently employ a large number of young people. The Bill also ends up focusing on the same area, and those businesses often speak about a triple whammy, because they are the same businesses that are affected by national living wage increases. In all three aspects, you end up with a similar group of businesses that face particular costs, and therefore, where there are unintended consequences, they are disproportionately likely to be faced by young people.
Jane Gratton: I think it might just influence an employer’s choice at the recruitment stage. If they have someone who comes along who has no experience but who they could take a chance on, or someone who is more experienced, and then there is the cost and the risk through the day one rights, it might just influence that decision. That is a worry, because that is not going to help us to tackle NEETs—people not in employment, education or training.
Alex Hall-Chen: I agree with that. I spoke to an SME just yesterday who said, essentially, that they will have to change their current recruitment process of taking on younger people and training them up, because it is too risky, given the reforms happening in the space, so they will focus on more experienced employees who can demonstrate previous competence.
The Chair
That brings us to the end of the time allotted for the Committee to ask these witnesses questions. On behalf of the Committee, may I thank the three witnesses for giving us full and very clear answers? Thank you very much.
Examination of Witnesses
David Hale and Dom Hallas gave evidence.
The Chair
We will now hear oral evidence from David Hale, head of public affairs at the Federation of Small Businesses, and Dom Hallas, executive director of Startup Coalition UK.
We must stick to the timings in the programme order that the Committee has agreed. For this session, we have until 10.40 am. Would the witnesses briefly introduce themselves for the record?
David Hale: I am David Hale, from the Federation of Small Businesses.
Dom Hallas: I am Dom Hallas, executive director of the Startup Coalition, which is a lobby group for tech start-ups and scale-ups in the UK.
Greg Smith
Q
David Hale: The impact assessment was quite clear that the bill would be more than £5 billion a year. For example, it did not include any of the consequential impacts on businesses from the changes to unfair dismissal. It merely counted the ability of the Government to change. Changes to unfair dismissal are one of the things that businesses flagged, so £5 billion is very much at the low end of that estimate. You may well have seen the Regulatory Policy Committee say yesterday that the impact assessment as a whole is not fit for purpose.
The only question about the £5 billion, or the £5 billion-plus, is where that cost is borne. Obviously, businesses can bear the cost. People who are not in work can bear the cost, or people who are in work can bear the cost through wages or through lower hours. The £5 billion is a very low estimate, but where that cost falls is the more complex question.
Dom Hallas: The starting point from our perspective is that tech start-ups and scale-ups are unusual businesses—unusual small businesses, frankly. They scale rapidly—they can be growing at 50% or 100% a year. They pay unusually well—disproportionately well. The average salary is in the range of £50,000 to £60,000. They change really fast, because they are scaling and doing things really quickly. They treat staff like royalty—they treat them incredibly well—because it is a highly competitive labour market for technology talent, and they need to be able to hire in it.
That means they really value flexibility. I cannot speak to the £5 billion figure, and the reports out today throw some scepticism on that. What I will not do is sit here today and tell you that this piece of legislation would be disastrous for our ecosystem—clearly not—but what it would do is present a series of speed bumps, a series of bumps in the road, for these kinds of businesses, the cumulative effect of which is to chip away at some of the flexibility that our companies prize.
Greg Smith
Q
Do you think the lack of flexibility, or making the rules more rigid, as this Bill does, and some of the factors that previous witnesses talked about—dissuading people to take on new hires and making the risk of new hires that much greater—will dissuade more people from choosing to leave payroll and start up on their own, whether through self-employment or registering a business?
Dom Hallas: I leave self-employment to one side, but from the perspective of an entrepreneur trying to build one of our tech businesses, the truth is that any number of things the Government may or not do in policy are not necessarily what persuades or dissuades someone from starting a business. The reality is that they are probably going to do it anyway. The question is, are we going to make it harder or easier for them? In truth, what we consistently see—and I think this is where you have the conversations around taxation and the Budget layered on top—is the risk of a number of pebbles in the stream for entrepreneurs that will not prevent them from trying to build their business, because they will crack on and try to do it. One of the things we consistently talk to entrepreneurs about when we ask them about policy is, “What are the challenges you face?” The answer they give far too frequently is, “There are loads of things, but we just have to get on with it.”
I put to the Committee that the question is ultimately how we prevent our policy environment from being seen as a barrier to overcome by the entrepreneur community and the founders who are building these kinds of businesses and creating these kinds of jobs. How do we create a situation that is as open and flexible as possible for them to operate and, therefore, a competitive jobs market that will ensure that the workers are treated really well?
Greg Smith
Mr Hale, do you have a view on that perspective?
David Hale: If the Government had a good process for the Bill, which I do not think they do, we would be exploring what the participation harm is. Part of that is not just whether firms choose to recruit, but who they choose to recruit. On the whether, from a small-business perspective, you might get a contract, you might choose to scale to meet it, or you might not. It is not the case that all small businesses will choose to scale regardless. There is a risk there, and if you increase risk, you lessen the chance that somebody will do that. Part of the importance of participation harm is not just whether, but which people are employed.
We know we have a CV culture in this country. We know that managers at all levels—I am talking not only small employers, but managers in small and large businesses—look down CVs and look for gaps. If people find gaps in CVs, we know that in the UK, they are less likely to feel that that is a risk they can bear. If you add risk to employment, part of the problem is not just whether they take that risk, but who they take that risk with.
Small businesses are currently most likely to take that risk. Small businesses currently recruit most from outside the labour market. If they do not do that—and we know that small businesses are responsive to risk—it is not just small businesses that lose out, but the businesses that in turn recruit from them. Larger businesses might well be more likely to recruit someone who has two years at a small business on their CV or experience doing bar work when they were a student, and they might benefit from the introduction to work they have had. But the whether and who is currently missing from the conversation, and I think that is because we have had such a quick process. That is the main thing. Does the Bill help somebody take that leap? The Government should be making that case. I have not seen a case for how the Bill would help somebody want to recruit more.
Greg Smith
Q
David Hale: There seems to be a big question about whether the Bill should be split up. It is a very large Bill. Overwhelm is the primary response. The second response is, to put it politely, bemusement about what the Government are trying to achieve and how these measures are intended to achieve it. We know the very high level, but the high level does not match the measures. If you are talking about security at work, the Bill does not appear to give extra security at work. There is bemusement about that.
Like most of us, small businesses are scared of getting sued, so there is fear about that. The Bill increases the risk of litigation against small businesses. The next question is about the possible harms of the response to that fear, which are things like the participation harm, harm to the work environment, and harm to individuals and the whole economy from the knock-on effects. I am not sure whether there are 28 or 70 measures—maybe some of you could list them all, but I do not think anyone else could. I do not think a small business would be able to tell you what they are or implement them all at once, so there is a question about whether the Bill should be split up.
Dom Hallas: I agree on the scale point. The Bill has a big impact. The top practical concern from a start-up ecosystem perspective is day one rights and exactly what that means. Obviously, there is an open discussion about the probationary period and exactly how that is going to work. From a start-up ecosystem perspective, the core point is ultimately that you have fast-moving businesses whose needs change, and the experiences of employees change.
The practical impact of the Bill in that area will be that people are less likely to continue to take a risk on someone, even when they have hired them after a probation period, because of the changes the Government are looking at. What we will get is a situation where employees who might be doing well, but not as well as you might hope, are more likely to see their employment terminated at that stage, as opposed to over a longer timeframe, with the business saying, “Well, we can’t take the risk.” So there seems to be a perverse incentive that ends up being created.
Justin Madders
Q
David Hale: To go back to the previous question, what I hope you will support is the introduction of a statutory sick pay rebate in the Bill. We have always been very clear that a rebate is important with any changes that increase SSP costs, because if you do not have a rebate, you systematically disadvantage the firms that take on people who are sick or likely to get sick, and those firms are already not supported enough by Government policy.
If you want to make changes to statutory sick pay, as the Bill proposes, you should put in a statutory sick pay rebate to cater for the risk to small firms. Say a firm has six staff members and two are off at the same time, that is 33% of the workforce. It would be very useful if the Government stepped up and actually supported firms that are taking on the people they are talking about. So it is a question more for you than for me: will the Bill include a rebate or not?
Justin Madders
Q
David Hale: It is a good question. It partly goes back to the overwhelm. We can talk to only so many small businesses at a time, and we can talk to them about only so many things. We can say, “If the changes to unfair dismissal come in, how will that change your recruitment?” We can have that conversation, or we can say, “If there are changes to zero-hours contracts, will that mean you have to ban swapping shifts in your business, just to cater for your regulatory risks?” We can explore those things, but only one at a time. We have 40 minutes today. We will spend less than a minute talking about each of the measures in the Bill. That overwhelm has a time consequence for good engagement and good exploration.
I do not want the officials who have engaged with us about the Bill to feel that that is not appreciated, but I do think there are process problems. This Committee is taking evidence from different groups in turn to explore the Bill over a two-day period, I think, but that is not the approach that the Department has taken, and that is a problem. At the Department level, each measure would have to be explored in turn, with different groups coming together. At the moment, the way in which the process has worked has created more division than is necessary. It has set up two sides—worker representatives and business representatives—and set them in opposition, without providing a voice for those at the biggest potential risk, which is the people who are out of work.
That is on the broad scale, but there are a lot of practical things, too: can we have regular meetings, organised at the same time each week, rather than them coming in and out of diaries, and that sort of thing? That is a practical issue, but those issues are important.
The Chair
Dom, do you have anything to add?
Dom Hallas: Just on the process point. People sit here on our side of the table and say, “Things aren’t being communicated well,” when the problem—let us be honest—is with the policy.
One of the broad challenges here, especially for small businesses, which David and I work with, is that, with an impactful piece of legislation, even communicating to them what is going on is difficult. They are a disparate group; we certainly cannot sit here and claim to represent the entirety of the tech start-up community, even if we work with a big community of businesses.
I am mindful of two things: the length of the implementation period is absolutely important, but the way the Government go about it and choose to operate in that period is also important. What does it mean, frankly, to explain to employers what their obligations are? How are we going to go through that process? We need to think about that coherently now, so that we do not get to that period later and, suddenly, it is panic stations. That will be really important.
Steve Darling
Q
David Hale: That is a slightly difficult question. You could think of Torbay and pick out hospitality, which might well have particular issues with the proposal. But you could also pick out larger businesses that recruit people when they are young and allow them to gain worthwhile skills in hospitality; they will miss out from the proposal. So it is a difficult question.
It is easier to identify the workers, or potential workers, who are most likely to miss out—that is, people who will present as a risk in a recruitment scenario. Certain businesses are more likely to recruit people who will present as a risk in a recruitment scenario. Such businesses tend to be smaller and will probably—more than usual, if not overwhelmingly—include sectors like hospitality.
The other businesses that will struggle are those that are mainly paid by the Government—the Government set their prices, in effect—such as social care and childcare. Those businesses will struggle because other businesses can put up costs, but they can only put up costs if the Government and Parliament agree to put up how much they pay and, in particular, the way they pay it—the way in which social care tariffs work very much encourages a zero-hours model. As a consequence, that would probably have to be changed to make the proposal work. But this is across the board for recruiters—there are different impacts for different businesses.
Dom Hallas: Speaking as a tech start-up and scale-up ecosystem organisation, in practice this proposal does not disproportionately affect any individual part of the ecosystem. Broadly speaking, it has the same impact.
Michael Wheeler
Q
Dom Hallas: I think that cuts to the question that Steve asked, which was about the different sectors and impacts. I can only speak for the tech start-ups and scale-ups that we work with. In practice, as I said, you have a very highly paid and mostly highly skilled sector, where the benefits and rights afforded to employees way outweigh any current statutory requirements. It is a highly competitive labour market, but that comes with the trade-off of flexibility. These businesses scale and they fail very frequently; that is part of the nature of the business. I think that, in truth, both employers and employees go into that relationship in our particular space with their eyes pretty open to that. So in our particular part of the world, I would challenge that assertion a little bit.
What I would say more broadly though—I think this is important and cuts to an area where we think the Bill could be improved for our space from both an employer perspective and an employee perspective—is that one area where we see potential further progress is banning non-compete agreements. In California, where really successful technology ecosystems have been built in silicon valley, one of the cornerstones of that has been that there are no non-compete agreements allowed in law. That offers more flexibility from a labour market perspective in many cases, but it also benefits employees significantly, because that flexibility comes to their benefit as well.
From our point of view, employers are, frankly, scrambling like hell to try and find the employees to fill these tech jobs, and the employees are very highly paid. If those businesses fail, or their needs change, that is, in our view, part of the trade-off with those kinds of businesses. I appreciate that that might not be the case across every sector, but providing that flexibility is a core part of that trade-off.
David Hale: Typically, flexibility is a demand from employees rather than a demand from employers. Most employers would love the same people to turn up each week for the same shift; most employees would like to be able to work their shifts around their day-to-day lives. Most workplaces come to an accommodation on that, with things like shift-swapping.
What I am not clear on is where there is gain. Take zero hours and the scenario where this Bill ends up meaning that somebody who has worked the same hours for 12 weeks in a row is offered a contract. Somebody who an employer has employed for the same hours for 12 weeks in a row is likely to be either somebody they would like to give a contract to or somebody who has worked in a seasonal role. Those are the two scenarios. That employee is unlikely to be the employee who wants more hours or regular hours, because the employer is already giving them that. So there is not really a gain that is very obvious. What there is, is a lack of flexibility, because the response to the legal risk will be for employers to say to employees, “Actually, I need to keep an eye on precisely how many hours you are working each week for a reference period. So, no, you are not allowed to swap shifts.” That is a damage to flexibility, with no obvious gain for people who have been working 12 weeks in a row, who, frankly, the employer probably wants to agree a permanent contract for, but does not.
Laurence Turner
Q
Dom Hallas: When I talked about employment law in that context, it was as part of a broader range of work we do with what we call platform businesses. They might be traditionally known as gig economy platforms, sharing economy platforms or online marketplaces that have two sides—someone who wants to sell something and someone wants to buy something, whether that is services or goods. The gaps in law that exist there are an increasing problem, because many of these platforms want to be able to offer support to the people who leverage them, but they are not able to do so because of the restrictive nature of employment law.
The challenge at the moment is that the Bill does not necessarily address that. There is clearly a way of potentially having further conversations on that. Obviously, some of that is being discussed down the line, including whether there is a single status for workers. We are not sure whether that is exactly the right approach, but there is a conversation to be had with Government about what is the right approach.
In the meantime, what we have is a structure built by court case, which I do not think is helpful for anyone concerned. It is frustrating for a number of unions and workers’ rights organisations that have been campaigning on this issue, but also for a wide variety of platforms—they are not the very biggest ones that are taking things all the way to court. They would prefer some clarity so that they could potentially offer additional benefits to people who leverage their platforms. That is the first thing to say.
A significant portion of the Bill is made up of things that we either have no view on or that, broadly speaking, would be fine. The reality is that I am not going to sit here and say that it is going to be catastrophic for the tech start-up community. In truth, it is not going to be.
David Hale: There are steps in the Bill on strengthening paternity and maternity protection, and that is one of the reasons why I talk about splitting the Bill up. Those seem like good things that probably have a positive impact on the workforce as a whole. As I said, because of the overwhelm, we are still going through the detail, but those seem like good measures. Would it not be better to focus on good measures, and things where the risks, costs and trade-offs are understood, and to make a decision to proceed positively with those?
Compared to the last speakers, we are less likely to have a particular view on the trade union aspects of the legislation. On the trade union aspects, it is fairly well understood what the measures are and what their impact will be—that is decision-ready. The bits that are not decision-ready are the proposals around unfair dismissal and zero-hours contracts. The bit that could be decision-ready but is not is probably around SSP and the question of a rebate.
The Chair
Anneliese Midgley is next. If we are brief with the question and answers, we will have time for one more question after this.
Anneliese Midgley
Q
David Hale: No, it is the opposite. FSB provides services to members, and one of the biggest services it provides is legal advice. One of the biggest things it provides legal advice for is employment relationships. Obviously, it is in the narrow interest of FSB as an organisation for employment law to be more complicated and less usable. However, we do not come here to argue for things that make FSB a more valuable product; we come here to argue for reasons why we do not have to exist—because the Government have made life easy enough for small businesses. We are owned and run by our members, and we are constitutionally required to act in the interests of small businesses.
Obviously, the more complicated employment law is made, the more likely we are to have people join and call an employment line. It would be irresponsible of us to try and change the law to make it more complicated and to make a bigger use case for joining FSB. We would never do that and we do not do that. It would be in the narrow interests of FSB for employment law to be complicated, but that is not what we are here to do.
Uma Kumaran (Stratford and Bow) (Lab)
Q
The Chair
It will have to be a one-sentence answer.
David Hale: I do not particularly mean to express strong views. I am trying to highlight the things that we need to have a better idea of before the legislation is in place. As you say, we have large-scale surveys out to try and work out what the possible impact of the Bill will be. We will run focus groups with businesses to try and work through what the consequences of the Bill will be. To do that, it would be useful to have a better understanding of what exactly the Bill will look like. But I am very happy to talk whenever about any specific measures in the Bill, and to ensure that how small businesses will react is linked to how decision makers will decide what is in the Bill.
Dom Hallas: I would just add that your experience is probably correct, Uma, but the reason for that is slightly different: no businesses will even know at this stage that the Bill will have any impact on them. The reality is that they are completely ignorant about what is happening in Parliament, when it comes to the way in which their businesses are changing. You see that on Budget day: even though there are weeks of conversations about what may or may not be coming, a number of businesses are suddenly surprised that things have changed for them. That is a practical concern, and that is precisely why you should engage with business both through this process and after it, not just by talking to people like me and David—although we are obviously always happy to be here—but more generally by doing as much outreach as possible with businesses on the ground that are trying to build stuff every day.
The Chair
Order. I am sorry to interrupt you, but we have come to the end of the time allotted. On behalf of the Committee, I thank both witnesses for the evidence they have given this morning. Thank you very much.
Examination of Witnesses
Ben Willmott, Cathryn Moses-Stone and Carly Cannings gave evidence.
The Chair
We will now hear oral evidence from Ben Willmott, head of public policy for the Chartered Institute of Personnel and Development; Cathryn Moses-Stone, head of policy at the Chartered Management Institute; and Carly Cannings, founder of The Happy Business School. Once again, we must stick to the timings on the programme motion, so this session will have to end at 11.25 am. Will the witnesses briefly introduce themselves for the record?
Ben Willmott: I am Ben Willmott, and I am head of public policy at the CIPD, which is the professional institute for human resources and people development in the UK. We have 160,000 members, who are mainly HR directors, HR managers and HR advisers working as practitioners in organisations across all sizes and sectors of business. We also have about 15,000 self-employed HR consultants among our membership, who work with tens of thousands of small firms to help build their HR and people management capability.
Cathryn Moses-Stone: My name is Cathryn Moses-Stone, and I am head of policy at the Chartered Management Institute. We are the leading professional body dedicated to raising the standards of management and leadership excellence across the UK. We have more than 220,000 members, and more than 150,000 people are currently studying on one of our management and leadership programmes. Our royal charter defines our charitable mission as increasing the number and standard of professionally qualified managers across the UK.
Carly Cannings: I am Carly Cannings, founder of The Happy Business School. I am a workplace culture consultant, and I help organisations to create happy, thriving, people-centric cultures.
Greg Smith
Q
Ben Willmott: There is no doubt that the cumulative impact of the proposed regulatory changes will be significant. Our members are responsible for making changes to employment contracts and workplace policies to ensure they align with any changes in employment legislation. They communicate any changes to staff and, crucially, ensure that managers have information, advice and, where necessary, training so that they meet any new legal obligations in the workplace.
Of course, we know that there will be a likely increase in the number of tribunal applications, which our members will have to respond to. That has not just potential compensation costs; there are HR and management costs to responding to tribunal claims, even those that do not actually make it to tribunal in the end and those that do not have any merit. Without a doubt, there will be a significant impact on workload.
The other point I want to make is that the time resources spent on those activities mean that employers will not have the time to invest in addressing the skills gap, upskilling staff and supporting technology adoption. That is the other challenge, which may undermine the other productive activities that you want HR and people management specialists to engage in.
So, yes, phasing these measures and really thinking about how they will be implementable is really important.
Cathryn Moses-Stone: Echoing Ben’s last point, which moves the discussion on quite nicely, we know that broadly there is quite strong support for the Bill among British managers. We have polled our managers over the past year and the last month, and in the last month over 75% were supportive of improved workers’ rights as a means to boosting productivity and 65% felt that it should be a top national priority. But obviously these are just changes. We know that they are meant to be the catalyst for implementing better working practices and more improved working cultures; the extent to which they can do that will very much depend on the implementation, which depends on the time and the process that we give to the managers who have to deliver it day to day, on the ground, to get it right.
Our data shows that over 82% of people are accidental managers, which means they go into a management position without any formal management training. If you are expecting them to deliver a whole suite of really complicated reforms, we need to ensure that the consultation period is long enough and that they are consulted in the right ways. Also, things like the fair work agency really have to take into consideration what the legislation means for allowing managers and leaders to upskill to deliver things in the right way, and the agency should not assume ill intent as a first port of call but work with people to understand what it might look like for them in practice, when they deliver it in their organisations.
Carly Cannings: I would probably echo the comments of the other panel members. It is not necessarily a case of splitting the Bill up; it is about giving enough time, and enough time with the detail. On reading the Bill initially, it is quite obvious that there are intentionally large gaps, because they are to be filled by secondary legislation for the most part. It is a case of ensuring that employers have enough time to get used to the changes introduced by the broad brush of the Bill, which should then be followed up with further consultation and enough notice on those changes.
Greg Smith
Q
Ben Willmott: We understand that the changes to the unfair dismissal regime in any new initial or statutory probation period will not come in until autumn 2026 at the earliest—that is the sort of timeframe you need to be thinking about. The other thing is that, because of all the other measures, it would help if you could push that out, as that is possibly the most substantive change that will affect all workplaces. If you could phase in some of the other changes over a longer period of time—say three years in total—that would certainly help.
The other point I have been echoing is that ACAS absolutely needs more resources to support the implementation process. We have called for ACAS’s budget to be doubled to £120 million a year. It is really crucial to support compliance, particularly among those small and medium-sized businesses that we know are more likely to fall foul through accidental non-compliance. They are less likely to know what their employment regulation obligations are and have less resources to adapt to the changes.
Cathryn Moses-Stone: Similarly, we would like to see consultation throughout the whole of 2025, which would be a really nice long period to try to understand exactly what the legislation means for managers. When we are looking at training courses and development for managers and leaders, that does not happen overnight. If there is an understanding that there will be a management gap in some particular area of the Bill, you then have adequate time to try to find the ways to support the people delivering it to upskill, so that they can do it in the right way. Although we cannot give specifics, I think 2026 echoes a decent period of time with implementation.
Greg Smith
Q
Cathryn Moses-Stone: I cannot talk to the specifics of the Bill’s initial cost implications, but I can talk to the cost implications of having really highly trained managers in the workplace. When thinking about general management training, we know that chartered managers, on average, boost a business’s revenue by £59,000. We know that the average pay rise of a chartered manager is £13,000. We see in a lot of our data that there is a direct productivity impact on an organisation from having highly skilled, highly trained managers who are able to implement policies that increase retention, retain talent, boost morale and create a more positive workplace culture, which prevents turnover, which saves a business from losing money.
It probably also comes back to the point that managers need time to get it right and to understand it, so that the burden on their business in the long run is not huge because they have the right amount of time to understand how they will work with their employees so that they do not have to escalate everything to tribunal. The early training period is crucial for the wider cost savings, because we know that there are lots of concerns from businesses on these issues, as well as the broader sentiment of being in support of the Bill.
Ben Willmott: One of the challenges for a business looking to upskill its managers is that that will incur a cost. If we look at the proposed increases in employment costs overall, we see those from the different measures in the Bill and those from the changes in the Budget, which also need to be taken into account. Businesses will have to find the money to upskill and train their managers. That is one reason why we are saying that ACAS needs to be resourced, particularly to help those smaller businesses that are more resource-challenged and have less knowledge and capability around the HR and people-management side of the business, which is so important to this.
Carly Cannings: Ben made a really important point about making sure that small businesses are adequately resourced to deal with the changes. I am, as many employers are—as the statistics bear out—very supportive of raising the standards of employment, and the Bill certainly takes a step in the right direction towards raising standards. The balance that needs to be struck is about making sure that employers, and particularly small employers, are able to cope with the changes.
There are lots of businesses out there already doing really good things, and some of the things in the Bill will be measures, practices and policies that lots of employers already have in place. That is not the case for everyone and, in particular, that might not be the case for small businesses. Echoing Ben’s point, small businesses are more likely to fall foul of the legislation accidentally, rather than intentionally, because they do not have the right access to support and advice in the same way. That is an important point that must not be missed.
Cathryn Moses-Stone: Would it be all right if I added a point? It is true, obviously, that there is a cost to training managers, but that is why we are also really concerned about the proposed defunding of the level 7 apprenticeships, because there will be a huge knock-on impact. Potentially, a huge skills gap could open up in highly trained management across the UK, at a time when businesses are going to be required to know their staff and to implement the legislation in the right way. We are concerned about how that aligns with the development and delivery of the Bill.
Justin Madders
Q
I have a more general question about what you see as the current weaknesses in the employment rights sphere. What do we need to do to give people more protection and security at work? Do you think the Bill addresses that?
Ben Willmott: The introduction of the fair work agency—a single enforcement body—is a positive step forward, but there needs to be further thought about how to improve the labour market enforcement system. We need a long-term strategy to improve labour market enforcement that includes not just a fair work agency but the Equality and Human Rights Commission and the Health and Safety Executive, not in a single enforcement body but as part of the strategy. We need measures to improve the efficiency of the employment tribunal system, which we know is swamped, and we need to increase the overall number of labour market inspectors—by international standards the UK is under-resourced on the number of inspectors.
As I have said before, we also need to significantly increase ACAS’s budget so that it can help small firms to comply. If labour market enforcement is about getting the carrot and stick balance right, that is why it is so crucial that ACAS can play that role in helping to raise employment standards. Businesses that are not bad employers—those that are poorly resourced, or might be knowledge-poor or time-poor, particularly micro and small firms—tend to fall foul of legislation because of those issues, not because of any malicious intent.
Cathryn Moses-Stone: I will start with the latter part of the question. We have a lot of data showing the impact of good management practice on both productivity and an improved workplace culture. Much of the Bill falls into that camp. For example, we know that one third of employees have cited negative work culture as a driver for leaving their organisation. That is obviously driven by ineffective management. We know that when managers in organisations have mutual trust and respect with their direct reports, they find that productivity rises. Poorly managed teams have lower motivation, satisfaction and retention. We believe a lot of the elements of the Bill are tied up in driving much of that in a positive way.
The things we are worried about, which echo what I have said before and what Ben has said, come down to implementation—that is, what the fair work agency looks like, how it behaves, how it supports, and how it gives space for managers to upskill. We know that 40% of our managers have expressed some concern about the detail of some of the policy, such as the right to disconnect. For example, what defines business-critical comms, versus just maintaining team comms?
We know that with high-quality management training—helping people to understand how to have difficult conversations, prioritise and have emotional intelligence—people can navigate those things much more effectively in the workplace. Our worry is about what the implementation will look like and about how managers and leaders will be supported in respect of the fair work agency.
Carly Cannings: I think the Bill is about raising minimum standards. As I said previously, a lot of employers are doing a lot of good things. Let us be realistic about the impact of the Bill: it is about raising minimum standards. Cathryn alluded to the bigger picture of creating happy, thriving workplace cultures, and it goes far further than that. This is not a call for further legislation; for me, legislation is about raising minimum standards. There is so much more outside and beyond legislation that makes a real difference to whether somebody has a happy, thriving workplace culture, and the benefits of that culture.
Thank you, Cathryn. You have done a very good job of outlining the things that I see in reality and when working with my clients—the factors that play a part in creating a workplace culture. Like I said, for me the Bill is about raising minimum standards.
Justin Madders
Q
Cathryn, you spoke about surveys with your managers and about the strong support for the Bill, and you said that there is nothing in the proposals that should alarm a responsible business. Given what you also said about the pace of implementation and the need to continue dialogue, if we get that right, would you still say there is nothing in the proposals that should alarm a responsible employer?
Cathryn Moses-Stone: First, the right to disconnect was just a useful example of the sort of concerns we hear.
We are not saying there is nothing for businesses to be alarmed about. One of the challenges that managers and leaders face is implementing and managing change across their organisations, and that is a complex thing. That comes back to our point that we have a whole suite of data on the impact that highly skilled managers have on managing change in their organisations, and the knock-on impact that has on recruitment, retention, productivity and the success of a business. It does not mean it is easy and straightforward; I do not think many things that managers and leaders do are easy and straightforward. Again, it comes back to the core principle of having the right amount of time and being able to support managers to skill up. That at least gives them the tools to be able to tackle these complicated things head on, because they will be complicated.
Ben Willmott: I absolutely agree that there is a significant role for well-designed, effectively enforced employment regulation to support overall improvement in employment standards and to support efforts to improve employee engagement and productivity. The key is that it has to be well-designed regulation. If it is excessive or too complex to implement on the ground, it will lead to increased costs, and that will undermine the ability of businesses to improve job quality, invest in recruitment and skills, and support technology adoption and things that will drive productivity. That is why, as we move forward, the consultation is so important.
An example of a measure in the Bill is around the reference period for workers to have the right to guaranteed hours. It is not set out in the Bill, but in “Next Steps” it is set at 12 weeks. In our view it is crucial that there should be consultation on the 12-week reference period. The Government have set out their principles for a modern industrial relations framework: accountability, proportionality, collaboration and balancing the interests of business and workers. Those principles need to apply as we roll out and implement the proposals, so 12 weeks is a test that should be subject to consultation, because it is so important to the functioning of that right. That is the sort of thing where we want to see consultation—where it would help to decide that the ultimate regulation is effectively designed and can work.
Steve Darling
Q
Ben Willmott: The Bill is focusing businesses’ minds on how they recruit, manage and develop their people. I will refer to comments I made earlier. If the measures in the Bill are designed the right way, they can support improvements in overall employment standards. But if consultation is not effective and measures are introduced that are not workable, it will have the opposite effect. It is about finding the right balance.
Cathryn Moses-Stone: Similarly, we have a lot of data that shows that policies like flexible working, enhanced family-friendly rights and day one rights make employees feel valued and supported, which in turn drives better performance.
We did a study last year looking at the impact of trained managers in effectively delivering hybrid working. By way of example, 68% of our managers said that hybrid working made it easier to increase their work productivity, and that was a result of managers being trained to manage teams that work in a hybrid way. We know that where managers trust their direct reports—this is what our evidence shows—they find that productivity rises. As I have already said, poorly managed teams face lower motivation, satisfaction and retention, and ultimately impact on business delivery. So really good management in designing work that allows employees to thrive is important.
We must remember that managers are employees themselves. Managers want it to work for themselves as much as they want it to work for employees. That in turn will boost productivity at the higher levels of the organisation as well. We have lots of data that backs that up. Again, it is all about how the legislation is implemented and all about the time and space that is given to support managers to do that.
Ben Willmott: The other thing I would add is that our members are certainly supportive of the ambition behind the Bill. Our member survey shows that there is significant support for changes to improve statutory sick pay and to improve parental leave.
There are definitely areas of the Bill that have support, but I will give an example of an issue. When talking to members in sectors that might bear more cost from changes to statutory sick pay, we found they were much more sanguine in September than they were after the Budget, because they are now thinking about it in the context of broader changes. The cumulative effect of changes and increases in employment costs needs to be taken into account when we think about individual measures.
Carly Cannings: On the point about productivity, if you look at what makes a workforce productive, there are lots of things that go in the mix, such as feeling engaged in the work you are doing and valued by your managers, as well as having an environment around you that offers things such as flexibility. The factors that lead to productivity are broad. We need to be realistic about the measures in this Bill and how far they will go to support productivity, given that lots of employers are probably already meeting lots of these minimum thresholds.
It is a step in the right direction. It raises the profile of things such as flexible working, so hopefully more businesses will adopt it—it is now a day one right anyway. It definitely moves in the right direction in terms of creating that happy, engaged workforce who feel valued and able to work in a way that works for them and their employer. Again, it is back to that point about raising minimum standards. There is more to this element about workplace culture and productivity than just minimum standards of employment legislation.
Cathryn Moses-Stone: Echoing that, it is important to acknowledge that lots of forward-thinking employers are already doing a lot of this stuff anyway. They are doing it for a reason, because they are seeing the impact on their business. That must not be forgotten.
Chris Law
Q
Carly Cannings: It was not a criticism when I said that it was about minimum standards. As I said, creating a happy, thriving, engaged workforce is more than just legislation. It is not to be misunderstood as a criticism of those minimum levels, but equally, you do not want to tie the hands of good employers by making them jump through too many hoops around legislation.
For me, this Bill is about raising the standards of those employers who are not necessarily doing, and need a bit of encouragement to do, the right things. We need to be mindful of the balance. The previous panel mentioned the impact on small businesses and the importance of not going too far the other way in over-legislating that ties the hands of small businesses. It is very much not a criticism; it is a realistic statement of the Bill being part of the package.
Ben Willmott: We have done a lot of research over the last few years looking at the level of HR capability and people management capability in small firms, and what sort of support they need. The research has involved more than 500 small firms, and shows the very low level of HR knowledge and capability within them. They do not have in-house access to professional HR practitioners; most of them do not use any sort of external professional HR consultancy support either.
There are a lot of issues that you probably would not imagine. A lot of small firms may not even have written employment contracts or written terms and conditions of employment. There is a lot of informality still in that part of the economy. That is the point I was making earlier. We really do need to find ways of providing better quality, more accessible advice and support to help these small firms meet their obligations and improve the overall level of employment standards in the economy.
Cathryn Moses-Stone: From our perspective, we would hope that this is a broader catalyst and a driver to see better-led and managed organisations across the board. We want to see more investment in management and leadership in general. We have lots of evidence looking at the impact of better-trained managers in the public sector and how that can support public service reform. We have evidence for what that looks like in healthcare education settings. We have evidence for what that looks like for delivering green skills and AI, and for how that is a driver of more investment in management and leadership across the board, given the evidence we have and what it does for workplace growth, productivity, our economy and people’s happiness.
Again, I emphasise the point that 82% of people are accidental managers. We have all heard—I am sure everyone in this room has, in their time—about a bad manager and the impact that that can have on an organisation. We see this, hopefully, as a bit of a catalyst for further investment and the thought given to M&L in general.
Nick Timothy (West Suffolk) (Con)
Q
May we explore the trade-offs a little? With this kind of legal framework, to what extent will managers be able to focus properly on the core purpose of their businesses, as opposed to compliance with the law? To what extent will managers be able to invest properly in training and new technologies to aid productivity, rather than have the costs set out in the impact assessment?
Ben Willmott: That is a really important point. I alluded to it earlier. We know that one of the things that will drive productivity will be looking at how businesses can identify and address skills gaps, which will require thinking about how we train and develop our staff and managers. We know that responsible technology adoption will, to a large degree, depend on the people element—things like job design, or making sure that people are trained and have the right skills to use technology, and that we are consulting employees in advance so that their views help shape how the technology is implemented.
Businesses only have so much bandwidth, so I think that there is a real challenge there, particularly for our members, who are on the frontline of trying to ensure compliance. At the same time, the business will be asking them to help improve workplace productivity through those other activities. That needs to be thought about when we think about how regulation interacts with other factors that might support workplace productivity.
Carly Cannings: You are right—there is an inevitable trade-off. Even employers who are now broadly compliant or doing good things will have some costs associated with bringing in changes to policies that reflect the actual detail of the Bill, for example. They might be broadly doing something good in that space, but it might not quite align with the provisions of the Bill. It is important to make the point that it is going to have an impact on employers, even those that are doing good things in that space already. But the way to offset that is by phasing the changes through—not dumping them all on employers all in one go, but helping them to navigate the changes. This has already been alluded to, but it is making sure that they have that support through the implementation phase.
Cathryn Moses-Stone: I am pretty much in agreement with Carly. Obviously, there will be an initial trade-off, and investment will be required, but I guess our point is that it is for longer-term gain. Once we have got those happier and more supported managers, and therefore workplaces, these things will become elements that save the business money in the long run. Understanding that broader piece is important, and making sure that the process is there in order to upskill and train people in the right ways. It will be about a clear understanding of, “Will this agency be there to support them in the right ways?”, rather than just being a place to go as a last resort, assuming a slap on the wrist and ill intent. What is the support package alongside this to manage some of those trade-offs?
Michael Wheeler
Q
“on a mission to help organisations build people-centric workplace cultures, where happy people can thrive.”
Which measures in the Bill will be most transformative and help you in that mission?
Carly Cannings: Not to labour the point further, but this is about setting minimum standards, and creating happy, thriving workplace cultures is far broader than employment legislation. On the stuff around flexibility, some of which has already come in through previous legislation, a common theme with organisations I work with is that having good, flexible working policies generally goes down very well with employers. As with everything, there is a balance to be struck, but some of the firming up of the flexibility rights is good. But as I said, lots of the businesses I work with are already doing good things in that space. It is more about bringing up the standards for the others. This is just a small part in that bigger picture, but a move in the right direction. I suppose it is raising the profile of those rights and broadening them.
Alison Hume
Q
Carly Cannings: That is a good point. Arguably, from my reading of the Bill, there is not a lot of specific focus on those rights. It is about standards across the board. There are already some protections, particularly unfair dismissal rules. Even though the qualifying period is likely to change, there are still the protected characteristic rights—the day one rights that already exist.
I have to say that, from my reading, the Bill does not scream out that there is lots in there that will help specifically those with disabilities and long-term health conditions. Flexible working is definitely part of that picture, but the big change was making it a day one right, which has already been done. The legislation is just tightening that up further. Being able to have flexibility is a big issue for people in terms of accessing work, so that is probably the biggest one. But as I say, a lot of that work has been done in making it a day one right.
Uma Kumaran
Q
Carly Cannings: I have reached out to businesses to try to get a sense of what is going on. At the moment, because there are lots of gaps in the detail, employers probably are not focusing their minds so much on the detail of the Bill. I suppose it comes off the back of the Budget and the NI changes. There is probably a lot for employers to get their heads around at the moment.
The consultation and engagement should be kept going so that businesses understand what is coming. Back to Cathryn’s point about seeing the greater good of this, if you get through what might be some initial pain in making some changes to your policy and implementing those changes, it is for the greater good. I suppose a lot of what I talk about is joining the dots between having happy, thriving workplaces and having more productive, successful businesses. It is about understanding that raising these standards and making working environments better for people is better for not just the people in them but the businesses themselves.
Ben Willmott: I think we need to look at how the system as a whole will work, particularly on that point about labour market enforcement. We have to look at not only national enforcement efforts but how efforts to support small firms work at a regional level, such as with combined authority areas, and the interface and being joined up at that level is really important.
One of the things that we are doing currently is the Government-funded HR support pilots through which we provide a limited amount of pump-priming HR consultancy support. We are working with Angus council in Scotland, as well as the Tees Valley combined authority and the Bournemouth, Christchurch and Poole council. They have a number of our CIPD-qualified HR consultants who provide up to two days of pump-priming HR consultancy support to small firms. That is being evaluated by the behavioural insights team to understand what good-quality business support on the people side looks like, and what a cost-effective system of providing that would look like as well. Some of those areas also need to be thought about if we are looking at creating a system where there can be a step change in people management capability and employment standards.
Cathryn Moses-Stone: Just to add one more thing, we need to streamline the enforcement processes and provide really clear guidance and support. It is all about those comms coming from Government, not just the scaremongering legal side. A small business should be able to log on and ask, “What support can I get? Can I get short modular courses on management training to help me figure out the legalities of this?” What resources will be available to support and not just regulate? You cannot regulate positive workplace culture into existence.
Dr Tidball
Q
Carly Cannings: How much time have we got?
The Chair
Not very long, actually.
Carly Cannings: There are a number of factors there. It is definitely about creating the right ecosystem and asking: do people feel connected to the work that they do? Do they feel purpose and meaning behind their work? Are their efforts recognised and valued? What is the dialogue and relationship like between leader and employee? Do people feel autonomous in their role? Do they feel that they are being micromanaged, or do they feel that they have autonomy and flexibility to do their work in the way that they want to? Do they feel that they are listened to? Do they feel that there is a sense of trust and respect? Is there transparency within the organisation? I could go on and on, but I am conscious that Cathryn might want to chip in.
Cathryn Moses-Stone: Unsurprisingly, I will say that skilled managers do that really well.
The Chair
I am going to move on to Anneliese Midgley for the last question very briefly, and with a brief answer.
Anneliese Midgley
Q
Cathryn Moses-Stone: I think it leads on from what Carly was saying. They see the direct benefits of creating happy, supported, trusting and inclusive workplaces. We have a lot of research that shows that really highly-trained managers and leaders create more inclusive workplaces, which has a really positive knock-on effect on both the business and people’s happiness. I think that everything I have said probably builds towards that same argument. It is better for the business as well as people.
The Chair
Thank you—that is a good point on which to finish. That brings us to the end of time allotted for the Committee to ask questions of the three witnesses before us in this sitting. I thank those witnesses for giving clear answers to the questions. The Committee will meet again this afternoon in the Boothroyd room.