Companies (Directors’ Report) (Payment Reporting) Regulations 2025
Lord Sharpe of Epsom Excerpts(1 week, 5 days ago)
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Lord Fox (LD)
My Lords, I was surprised to hear the noble Lord, Lord Sikka, describe this SI as looking persuasive, as nothing he said prior to that indicated that that was how he felt. I will pick him up on one point on auditors, having been responsible for the content of dozens of annual reports at a corporate level: although the auditors may or may not have had a legal responsibility for directors’ reports and strategic reports, there is not a single directors’ report or strategic report for which I have been responsible where the auditors did not pick up and verify the points within. I am merely observing this; I do not think we need a debate on it because it is not relevant to the statutory instrument. It was just because the noble Lord brought it up.
Late payment remains a significant issue for UK businesses, as the Minister said—particularly small businesses but other businesses too. Our calculations show that, in 2024, small businesses were owed an average of £21,400 in late payments. This clearly has a significant effect on cash flow and it creates a real challenge.
Without cash flow, business viability is threatened and people are unable to invest in their businesses. Late payment undermines growth and drives some firms out of business. Some businesses use their suppliers’ balance sheets to fund their cash flow. We have seen notorious examples of this; for example, it seemed that Carillion’s entire business model was based on funding its activities through the cash flow of its supply chain. This sort of statutory instrument should be able to identify those operators effectively.
This legislation goes some way to strengthening transparency around how large companies pay suppliers. Here, I agree with the noble Lord, Lord Sikka: it is not a universal panacea but a small step, and we should be careful not to invest too much in this step. Businesses have been expected to report on a number of issues, such as their environmental performance and the number of women in particular roles, for many years, yet change at the corporate level has been very slow despite the transparency that was earned through legislation.
This SI should enable investors, auditors, shareholders and potential suppliers to get a better idea of what a company is about, as much thematically as definitively. If a company always files late numbers, that tells you something about how the business is managed; in some cases, one-off things may make that happen. As the Minister set out, though, there is more to be done. However, he did not mention the role of public procurement, which is vital to driving the right behaviours in business. I would like the Minister to talk about that and accept that the Government have a strong leadership role around public procurement and that there is still a lot of work to be done.
That said, taking into account its limited objectives, we support this statutory instrument.
Lord Sharpe of Epsom (Con)
My Lords, following on from the noble Lord, Lord Fox, so do we.
As the Minister rightly outlined, this instrument introduces new requirements for large companies to report annually, through their directors’ reports, on their supplier payment practices and performance. Although the content of these disclosures remains broadly in line with the existing reporting framework, the shift to include them in the directors’ report—alongside their existing publication on the government portal—is a notable development in terms of transparency and scrutiny.
We recognise the intent behind these regulations and support the objective of improving payment practices, particularly given the long-standing and well-documented impact of late payments on small businesses. At this point, I was going to take a detour into some statistics, but the noble Lord, Lord Fox, has shot my fox and quoted them already. We do have a few questions, though; they follow on from those asked by both of the previous speakers.
First, how will these new reporting obligations interact with enforcement? Transparency is important, but it must be coupled with accountability. Will the Government monitor compliance with these new requirements? Are there plans to review their impact in due course? I think I heard the Minister say that there is a plan to review these measures in due course; I would be grateful if he could confirm that.
Secondly, although the inclusion of this data in the directors’ report means that it will be seen by shareholders and auditors, does the Minister expect this alone to drive behavioural change? Beyond disclosure, what further steps are the Government considering to tackle poor payment practices where they persist?
Thirdly, we note that the instrument does not introduce changes to the underlying payment terms or practices; it merely brings reporting into a different format. Do the Government believe that there a risk that companies may comply in form but not necessarily in substance?
None the less, from these Benches, we continue to press for action to support small businesses and ensure that they are paid fairly and on time. On that, we share the ambitions of the noble Lords, Lord Fox and Lord Sikka. The problem of late payment is persistent, and while the measure may support transparency, it must not become a substitute for enforcement or cultural change. On that basis, we do not oppose these regulations. We urge the Government to treat them as part of a broader, ongoing effort to improve business practices and protect small suppliers.
Lord Leong (Lab)
My Lords, I am really conscious of what is happening in the Chamber, so I will try to be as comprehensive as possible and brief at the same time. I am really grateful to noble Lords across the Committee for their contribution. It is evident that we all agree that tackling late payments is crucial for driving the economy forward and I thank all those who have spoken in this debate. I will try and answer as many of the questions as possible, especially those from my noble friend Lord Sikka. If I have not answered all his questions, I will go through Hansard and write to him.
My noble friend Lord Sikka asked why there are so many places where businesses have to report on their payment method. This gives businesses two places where they can look for the same information. It should not increase costs, and it basically gives flexibility and the choice for businesses as to where they look for this information. I would say it is good that there is not only one place but various places that they can look for such information.
The noble Lord asked who enforces company law. I am sure that he will know that Companies House is also an enforcement agency, and we have invested a fair bit to ensure that it is able to enforce company law accordingly.
The point about directors’ reports not being audited is not correct. Auditors do audit directors’ reports under the Companies Act 2006. They must say whether information in the directors’ report is consistent with the annual accounts and must highlight any material misstatements or inconsistency.
The noble Lord also pressed on the Reporting on Payment Practices and Performance Regulations 2017, which also applies to LLPs. This requires large business in the UK to publish information biannually about their payment practices and performance to the GOV.UK portal. Initially introduced in 2017, these regulations were amended in 2024 and 2025 following a 2023 consultation. The current regulations do not apply to LLPs because LLPs do not publish a directors’ report.
The noble Lord, Lord Sharpe, asked about enforcement. The Financial Reporting Council has a responsibility to review the annual reports and accounts of large companies for compliance with accounting standards under the Companies Act 2006. Where potential non-compliance is identified or suspected, the FRC can write to the company for further clarification and will aim for voluntary amendment of the disclosure in subsequent periods. Where this is not possible, Section 456 of the Companies Act 2006 gives the FRC the power to apply to the court for a declaration that the directors’ report does not comply with the Act. In such circumstances, the court can order that the preparation and distribution of revised accounts be carried out at the directors’ personal expense.
The data produced by this report is analysed by the Department for Business and Trade and used to evaluate whether payment practices are improving. We can use this information to determine how beneficial the relations have been and where we can do more to help improve payment times. This regulation will be subject to statutory review on or before 6 April 2029.
Further, the Reporting on Payment Practices and Performance Regulations 2017 requires that large companies report their payment performance twice a year.
Jaguar Land Rover Cyberattack
Lord Sharpe of Epsom Excerpts(1 week, 6 days ago)
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Lord Leong (Lab)
My Lords, may I echo the words of the noble Lord about the late Lord Campbell? On behalf of the Government and this side of the House, I thank the late Lord Campbell for his public service to this country. He will be sorely missed in this House.
The National Cyber Security Centre has been working very closely with Jaguar Land Rover to provide support in relation to the incident. The NCSC response to the JLR incident is ongoing, but it is set to reduce as mediation takes place. Throughout the event, the NCSC has been capturing feedback to inform national and internal incident management practices. The NCSC will participate in a cross-government “lessons identified” process to review how best to improve the Government’s response, share information across partners and react to some of the unique pressures, such as those that the noble Lord mentioned. The NCSC would be happy to share aspects, depending on classification, of this process with noble Lords and other Ministers once it has been conducted.
Lord Sharpe of Epsom (Con)
My Lords, according to the National Cyber Security Centre’s latest report—and following on from the noble Lord, Lord Fox—in the year to September, there were 18 highly significant attacks, meaning attacks with the potential to have a serious impact on essential services. Given the increasing frequency of these attacks, can the Minister reassure the House that the Government’s plans for a centralised national digital ID database would not create a single point of potential failure, one breach away from exposing the entire British public to foreign espionage, hostile state interference or domestic data misuse?
Lord Leong (Lab)
I thank the noble Lord for that point. As far as private enterprise is concerned, the Government will not interfere in what private business organisations do. However, government can produce the tools and the guidance so that companies can have a more robust and resilient approach to cyberattacks. For example, the Cyber Governance Code of Practice shows a board of directors how effectively to manage the digital risks to the organisation. As I said earlier, all companies, if they have not done so, should conduct a comprehensive risk assessment of their digital and cybersecurity framework. They should apply for Cyber Essentials certification or the various other forms of certification and ensure that they have appropriate cyber insurance.
Limited Liability Partnerships (Application and Modification of Company Law) Regulations 2025
Lord Sharpe of Epsom Excerpts(1 month, 2 weeks ago)
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Lord Vaux of Harrowden (CB)
My Lords, I thank the Minister for introducing these regulations. It is good to hear from him on the progress Companies House is making in cleaning up the register and the process of verification, although, as the noble Lord, Lord Sikka, has just demonstrated so clearly, it is a work in progress.
The Register of People with Significant Control (Amendment) Regulations 2025 are fine so far as they go, but they still leave it far too easy for persons with significant control to disguise themselves and, therefore, not be disclosed on the register as they should be. We discussed this loophole at some length during the passing of what the noble Lord called the 2023 Act. It relates to the use of undisclosed nominee share- holders.
During the process of passing the Act, this House passed an amendment on Report that would have required shareholders holding 5% or more to declare whether they are holding those shares on behalf of another person. That amendment was ultimately dropped during ping-pong after a compromise was reached with the then Government that inserted into the Bill a power for the Secretary of State to regulate to strengthen the rules around nominees’ shareholdings.
A PSC has an obligation to state that they are a PSC, but a dishonest actor would not do so. The problem we have is that the onus on reporting PSCs falls to the company, and the obligations on the company under the statutory guidance are quite weak. The statutory guidance says that the company should simply scan its share register and identify any shareholders who hold 25% or more. It is easy therefore for a PSC who wishes to hide their identity to structure their holdings via a number of shareholdings below that 25% threshold. For example, five holdings at 20% would give 100% control.
All the dishonest actor has to do to hide that control is find five willing people who are prepared to have their name on the shareholder register and hold shares on behalf of the dishonest actor as nominees. There is no comeback for those nominees. They have no obligation to disclose the nominee arrangement unless the company actively asks them to, which it does not have to do if the shareholding is below 25%. So the company could quite legitimately say that it had followed the guidelines and state that it does not have a PSC because it could not see any shareholders above the 25% threshold.
A whole industry of nominee companies has grown up, as you can see if you google “nominee shareholders”. If the Minister has not done that, I urge him to take a look. Although there are perfectly reasonable uses for nominee shareholdings, it is fair to say that most of the nominee companies make it pretty clear on their websites that the primary purpose is simply to hide the beneficial ownership of the shareholding, which they will do for just £200 a year. Very few of them point out the PSC rules. Forcing those nominees to lie on the record to hide the identity of the beneficial owner would, at the very least, concentrate their minds and make it much harder for a dishonest PSC to find nominees prepared to hide their identity.
My questions for the Minister are as follows. What analysis have the Government done on this since the Act was passed? Does he recognise the issue? Is there any plan to use the powers that were inserted into the Act during ping-pong to deal with it?
Lord Sharpe of Epsom (Con)
My Lords, I, too, am delighted to be able to welcome the Minister back to his place. I should have done so earlier, in the Chamber, but I am very pleased to see him there. I am grateful to him for introducing these three important instruments and for so clearly setting out the Government’s rationale. For the record, I should probably declare that I have been a member of an LLP, but I am not any more. Together, these instruments continue the implementation of the Economic Crime and Corporate Transparency Act 2023, with the shared objective of enhancing transparency, reducing fraud and strengthening the integrity of the UK’s corporate environment. For the record, I should say that I agree very much with the noble Lord, Lord Vaux. It is very good to hear the progress being made with regard to Companies House. We will come back to that.
Jaguar Land Rover Cyberattack
Lord Sharpe of Epsom Excerpts(1 month, 2 weeks ago)
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Lord Sharpe of Epsom (Con)
My Lords, as the nature of the threat that we face is evolving and the lines between hostile actors are blurred, do the Government have any plans to centralise verification and procurement approval, so that the best available commercial solutions designed to be able to tackle, investigate, monitor and counter cyberthreats and, indeed, critical tools such as secure messaging, can be delivered to the various agencies that need them without the need for the usual lengthy processes?
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, before I respond to the noble Lord’s question, I take this opportunity to thank my noble friend Lady Jones of Whitchurch for her sterling worth as a Minister in this House. I am sure that all noble Lords will thank her for her performance at this Dispatch Box and her support to all Members across the House. I am sure that we will hear many more of her contributions from the Back Benches.
The new Commercial Digital Centre of Excellence for the UK central Government will substantially improve service delivery, enhance user satisfaction and drive efficiency, leveraging new procurement regulations. The provision of cybersecurity services is a part of this vision. In addition, through the Crown Commercial Service’s Cyber Security Services 3 agreement, we provide an official streamlined route to market for National Cyber Security Centre-assured services. I also need to say that the Government are working tirelessly to improve the cyber resilience of government systems, basing our efforts around the Government’s cybersecurity strategy. We have made important steps in understanding and mitigating cyber risks. We are now implementing a more interventionist approach to public sector cyber resilience to address key risks and better support departments.
Employment Rights Bill
Lord Sharpe of Epsom ExcerptsWednesday 23rd July 2025
(3 months ago)
Lords ChamberRead Full debate Employment Rights Bill 2024-26 View all Employment Rights Bill 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 113-IV(b) Manuscript Amendment for Report (Supplementary to the Fourth Marshalled List) - (23 Jul 2025)
Lord Goddard of Stockport (LD)
The noble Lord, Lord Hunt, will say “Hear, hear” no more because we cannot support Amendment 149A, which is a new amendment that proposes removing Clause 72. I will tell the House why we cannot support it. On Monday I supported the noble Lords, Lord Hunt and Lord Sharpe, when we were very critical of the Government for tabling amendments on Report. People nodded wisely and said that it is not a good thing to do, yet this amendment was tabled today or yesterday. It has had no time for discussion or debate. It has had no time for people to understand its nuances. We know that it takes a big chunk out of the Government’s manifesto pledge Bill, and that does not seem fair to me.
In our view, legislation should be done through constructive amendments. If you do that, you end up with a compromise, whether it is through ping-pong or by persuading the Minister to change their point of view. It is almost like taking the sledgehammer again, and that is not good politics. It is not good for the House, and it is not good for Members. Lots of Members come into these debates, not all the time, and try to get a flavour of what is going on. They might hear that Amendment 149A, which sounds fairly reasonable, has been put forward. It is not fairly reasonable; it takes an enormous chunk out of the Government’s Bill, and that cannot be right for democracy. I have criticised Ministers many times, but we should be mindful that it is in the manifesto and move legislation via amendments rather than trying to remove huge chunks of legislation. On that basis, we will not support Amendment 149A.
Lord Sharpe of Epsom (Con)
My Lords, on balance, it is a great pleasure to follow the noble Lord, Lord Goddard. I will speak to Amendments 148, 149A, 149ZA and 150 standing in my name and that of my noble friend Lord Hunt of Wirral. Before I do that, I thank the noble Lord, Lord Burns, for his common- sense amendment. We think political contributions must always be a matter of choice, not a default. That seems to us a fair and democratic principle, and the Government ought to listen. I was particularly pleased to see that the Attorney-General was in his place to listen to the excellent arguments advanced by my noble friend Lady Cash, which all pertain to international law. I hope he was paying attention. If the noble Lord, Lord Burns, decides to test the opinion of the House, we will support him.
I turn to Amendment 148. On 8 July, the Secretary of State for Health and Social Care, Wes Streeting, remarked rather pointedly that despite the fact that the majority of resident doctors did not vote for strike action, the BMA is now preparing for strike action and it is completely unnecessary. Who can blame him? Strikes are happening under the existing law, and now this Government propose to remove the 50% threshold, the very last democratic safeguard that ensures that strikes have substantial backing. What would that do? It would significantly lower the bar for strike action and allow a smaller minority to cripple vital public services. It is worth bearing in mind that it is public services we are talking about because that is where the bulk of union members are. One has to wonder whether the Government agree with their own Health Secretary. If they do, why are they proposing this? If they do not, will Mr Streeting be invited to correct his error on the record? Do the Government share the disappointment that he expressed on 8 July about the BMA’s strike action or was that simply a performance for the cameras, a convenient public relations stunt, while others quietly dismantle safeguards and seek to make extremists more powerful?
On Amendments 149A and 150A, I am grateful to my noble friend Lord Jackson of Peterborough for his words. Earlier this month, Norman Tebbit, Lord Tebbit, died after a long period of illness. One of his enduring legacies was his role in turning around an unemployment crisis that peaked at 11.5% in 1982. Thanks to the reforms introduced on his watch, the rate fell sharply thereafter. The success was later acknowledged even by the Blair and Brown Governments, who accepted the new consensus, a fair balance between workers’ rights and the flexibility that businesses need. It was the late Lord Tebbit who warned us that we do not intend to see again the scenes of intimidation, mass picketing and political strikes that disfigured our country in the 1970s. That warning remains as relevant today as it was then. Supervision of picketing is an essential safeguard. It ensures that industrial action remains peaceful, lawful and accountable. Removing these provisions, as the Government propose, risks returning us to the chaos and intimidation of the past, as described so ably by my noble friend Lord Evans of Rainow.
Amendment 149ZA is crucial to protect airlines from unfair financial risk caused by conflicting notice periods. This was originally tabled in Committee by the noble Lord, Lord Hutton of Furness. He raised a timely and important issue. As he did not retable the amendment for Report, we did because, frankly, the Committee debate was very late, it was truncated, and the Minister’s response was inadequate.
I refer noble Lords to col. 1342 of Hansard on 10 June for the detailed arguments of the noble Lord, Lord Hutton, but in essence they are that, under current law, airlines must give at least 14 days’ notice of industrial action to avoid costly compensation claims under passenger rights legislation—namely, UK261—unless there are extraordinary circumstances, and a ruling of the European Court of Justice in 2019 made it clear that a strike by an airline’s own staff is not considered an extraordinary circumstance.
The amendment would therefore simply protect airlines from having to pay hundreds of millions in compensation for cancellations caused by strikes. Reducing the notice period to 10 days would expose airlines to up to four extra days of compensation liability and a serious and unavoidable financial burden that would inevitably be passed on to passengers, making family holidays even more expensive for working people. The amendment would ensure that the 14-day notice period remained for industrial action affecting airlines, and it would align industrial relations law with passenger rights and protect vital UK businesses from crippling— I will be charitable and say probably unintended—costs.
In Committee the noble Lord, Lord Katz, argued that this would represent a sectoral carve-out, but that is not a logical argument as the sector is governed by a rule that does not apply to any other. It is therefore entirely consistent with a level playing field. It is the contradiction in legislation that puts airlines at a disadvantage.
Finally, I agree fully with my noble friend Lord Leigh about seeking to maintain the requirement that trade unions should report their political expenditure in their annual returns. I shall support him too, should he wish to call a Division.
Lord Sharpe of Epsom
Member's explanatory statement
This probing amendment would reinstate the 50% threshold requirement for industrial action to be voted on by a trade union and seeks to probe whether the Government perceives a risk to the democratic integrity of trade union ballots for industrial action as a result of the provisions to remove the 50% requirement.
Lord Sharpe of Epsom (Con)
My Lords, time and again we hear about workplace democracy from the Government Benches, and then they introduce this. So yes, I would like to test the opinion of the House.
Lord Sharpe of Epsom
Employment Rights Bill
Lord Sharpe of Epsom ExcerptsMonday 21st July 2025
(3 months ago)
Lords ChamberRead Full debate Employment Rights Bill 2024-26 View all Employment Rights Bill 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 113-III(a) Amendments for Report (Supplementary to the Third Marshalled List) - (21 Jul 2025)
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment and others in the name of Lord Sharpe maintain the existing 10% membership threshold for union recognition applications by removing provisions that would have allowed this threshold to be modified through secondary legislation.
Lord Sharpe of Epsom (Con)
My Lords, I rise to speak to Amendments 135 to 143, all in my name and that of my noble friend Lord Hunt of Wirral. When this power first appeared in the Bill, the Minister in the other place, Mr Justin Madders, admitted that the Government had not even decided whether they were intending to use it. First, they said there would be no consultation, then they changed their minds. That is not a serious way to make laws; it is confused and confusing, especially for, as ever, SMEs, which are, as we have discussed many times during the passage of the Bill, in a state of uncertainty about the basic rules governing their own workplace.
If the membership threshold was reduced to 2%, as the Government appear to envisage, in a company that employs 250 employees, it would require only five members in the bargaining unit to request a ballot. That would mean that a union could gain bargaining authority over workplace conditions, pay and leave arrangements for the entire bargaining unit based on the explicit support of a tiny number of employees. This raises questions about whether such an arrangement adequately reflects workforce preferences, particularly for employees who may value direct engagement. That potentially creates a situation in which unions may submit many speculative requests for recognition, with little depth of membership in a proposed bargaining unit. The process comes at a cost to the employer of both managing and arranging access and facilities, and to the Central Arbitration Committee for supervising these potentially speculative ballots.
I really think this speaks for itself; there is not a huge amount to say in addition, although I would note that the noble Lord, Lord Hendy, talked earlier about workplace democracy. Whatever it is, it is not this, so I beg to move.
Lord Lucas (Con)
My Lords, I have Amendment 144 in this group. We discussed the same amendment in Committee. If we do not have a number, it means that, essentially, one employee could trigger union recognition. Surely that is not something we should impose on small businesses.
Lord in Waiting/Government Whip (Lord Katz) (Lab)
I thank all noble Lords for the short but focused debate we have had on this set of amendments, moved and spoken to by the noble Lord, Lord Sharpe of Epsom. I particularly pay tribute to my fellow GMB member, the noble Lord, Lord Goddard of Stockport.
As I set out in Committee, we believe that current thresholds pose too high a hurdle in modern workplaces, which are, as we know, increasingly fragmented. We want therefore to be able to consider whether the 10% membership threshold on application should be reduced in future. The reason why a range of 2% to 10% has been chosen is that, in 2020, the previous Government reduced the threshold that triggers information and consultation arrangements from 10% to 2% in the workplace, so what the Bill proposes aligns with that. But, to be absolutely clear, we want to consult before making any decisions on whether we should bring forward secondary legislation and by how much the threshold should be varied, if at all. We will consult businesses—including, of course, small and medium-sized businesses—as part of that consultation process.
Should we decide to bring forward secondary legislation in the future, that legislation will be subject to full debate in both your Lordships’ House and the other place. We will carry out an impact assessment at that time that will consider impacts on businesses, including, as before, small and medium-sized businesses.
I want to reassure all noble Lords, and the noble Lord, Lord Sharpe, in particular, that, whatever the application percentage in the bargaining unit is or may be, the fact remains that unions would still need to obtain a majority of a bargaining unit in a trade union recognition ballot. That point is fundamental to the misconception that is coming from the Benches opposite about what this part of the Bill does or does not do. To be clear, this is not, to address the point of the noble Lord, Lord Fuller, the “tyranny of the minority”; in fact, it is absolutely contrary to that point. This is ultimately about a trade union having to win a majority.
Experience has shown that this is not easy to achieve. The union will have to make a good case to persuade the majority in the bargaining unit to vote for recognition in a recognition ballot overseen by an independent, qualified person. It is in the trade union’s interest to be confident that it can win a majority in the ballot, otherwise it would still be prevented, as is currently the case, from applying for another statutory recognition ballot in the same bargaining unit for three years. That is why it is highly unlikely that a union will apply for statutory recognition when there is only one worker who is a member of that union. Indeed, if experience tells us anything, it is that it is highly likely that trade unions will continue to focus their efforts on larger workplaces where there is greater bang for the organising buck.
The union recognition process is generally consensual, and that is a good thing. In the nine years from 2017 to 2025, only 375 recognition applications have gone to the CAC. Close to half of the 1,476 recognition applications received since 1999 were withdrawn by unions at various stages of the recognition processes, in many cases because the parties have reached a voluntary agreement for recognition. The confrontation that has been set up by some speakers from the Benches opposite is a chimera; this is not the reality of organised workplaces. Given that, I ask the noble Lord, Lord Sharpe of Epsom, to withdraw Amendment 135.
Lord Sharpe of Epsom (Con)
I am grateful to the Minister for setting out the context in a bit more detail, but I am afraid I am not entirely persuaded. I would like to test the opinion of the House.
Employment Rights Bill
Lord Sharpe of Epsom ExcerptsWednesday 16th July 2025
(3 months, 1 week ago)
Lords ChamberRead Full debate Employment Rights Bill 2024-26 View all Employment Rights Bill 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 113-II(a) Amendments for Report (Supplementary to the Second Marshalled List) - (15 Jul 2025)
Lord Sharpe of Epsom
“Right not to be unfairly dismissed: reduction of qualifying period and introduction of initial period of employmentSchedule 3 contains provision—(a) reducing the qualifying period of employment for unfair dismissal and introducing provisions in respect of an initial period of employment, and(b) making further consequential amendments.” Member’s explanatory statement
This amendment provides that the qualifying period for unfair dismissal is reduced as set out in further amendments to Schedule 3. It also provides for an initial period of employment after the qualifying period during which a modified process and different compensation limit would apply, as set out in further regulations.
Lord Sharpe of Epsom (Con)
My Lords, the Government’s intention to protect workers is commendable. We all agree that fairness, dignity and security at work are essential pillars of a just society. However, the approach taken in this Bill, particularly the changes to unfair dismissal rights and the introduction of a statutory probationary period, is confused and counterproductive. What the Government have failed to grasp is that, when businesses are given the flexibility to manage their workforce pragmatically, that is precisely when they are more likely to take on new staff. Hiring is always a risk. By heightening that risk and making it more difficult to manage, this Bill creates disincentives to hire, particularly at the margins of the labour market, where the stakes are highest.
This is fundamentally a question of incentives. Reduce the employer’s ability to assess suitability, cultural fit or even basic reliability, without the spectre of legal sanction, and you will see fewer jobs created. The cost is very real, but nowhere is it properly considered in the Government’s own impact assessment. That acknowledges a likely 15% rise in employment tribunal claims, but makes no attempt to model the knock-on effect on hiring behaviour. The tribunal system, as we know, is already overstretched, with cases often taking more than two years to resolve. A 15% increase without corresponding investment will only deepen the backlog, and employers will know that they are walking into a system that is clogged and uncertain.
Then there is the statutory probationary period, which the Government propose with no real clarity. The Bill fails to explain how this period interacts with the obligation to act reasonably or whether there will be a different standard for dismissals during this window. Will there be a list of fair reasons? Will an employer be able to extend the period if performance takes longer to assess? None of this is addressed. As any employer will tell you, uncertainty in employment law leads not to innovation but to caution and legal advice.
Perhaps the most troubling aspect of the Government’s approach is its likely effect on social mobility. When you raise the legal risks of hiring, it is not the well-connected, polished graduate who loses out but the individual on the edge of the labour market, the person returning to work after illness or parenting, the school leaver with no contacts, the ex-offender with a spent conviction, the refugee trying to prove themselves. The Government’s impact assessment recognises this risk, because it says that making unfair dismissal a day one right
“could damage the employment prospects of people who are trying to re-enter the labour market, especially if they are observed to be riskier to hire”.
Those are not my words but the Government’s.
The same is true for a “cultural fit”, which the Minister dismissed in Committee as an illegitimate reason for dismissal. She said:
“The Government do not believe that an employee not being a cultural fit within an organisation should be a fair dismissal”.—[Official Report, 21/5/25; col. 334.]
However, “cultural fit” is not a euphemism for prejudice; it is about whether someone complements the way in which a team works, the style of communication or the pace and rhythm of a workplace. This is particularly acute for a small business. Hiring mistakes are costly. Even a highly skilled worker takes time to reach full productivity and the cost of advertising, onboarding, training and then managing a dismissal is not trivial. If employers cannot be confident that they will have a window in which to assess a new hire, including on soft factors such as team dynamics, initiative or client manner, they will become more conservative. They will play it safe. Who loses then? Again, it is the person who just needed someone to give them a chance.
My amendment offers a better path. It reduces the qualifying period for unfair dismissal from two years to six months, a meaningful extension of protection for workers. It also creates an initial period of employment following that six months in which a simplified process and lower compensation cap would apply. That strikes a fair balance, giving employers space to assess suitability while ensuring that bad-faith dismissals still carry consequences. Crucially, it also removes the sweeping power given to the Secretary of State in the Government’s clause to modify Section 98(4) of the Employment Rights Act, a power that could drastically shift the fairness test without proper parliamentary oversight.
Employees already have day-one protections against discrimination and automatically unfair dismissal, as they should. However, general unfair dismissal should be subject to a short and defined qualifying period that employers understand and workers can plan around. My amendment delivers that clarity. It also avoids a situation where employers are left wondering whether a dismissal based on fit or reliability will land them in court, even when handled with care.
We have to be clear that jobs are not abstract concepts; they are costs. In the early stages, even the most promising employee is an investment that takes time to repay. Employers need space to make those judgments. This Bill, as it stands, puts a thumb on the scale in favour of caution and against second chances. That is not fair, that is not just and that is not how we grow a dynamic, inclusive labour market. I beg to move.
Lord Vaux of Harrowden (CB)
My Lords, I have two amendments in this group, Amendments 50 and 67, which, like the amendments the noble Lord, Lord Sharpe, has just spoken to, which I have also added my name to, relate to day-one unfair dismissal rights. I thank the noble Lords, Lord Leong and Lord Katz, for making time to discuss this issue with me, for which I am very grateful.
The introduction of day-one dismissal rights will have a range of consequences: in particular, additional costs to business, which the impact assessment says will run to hundreds of millions a year and the Government themselves says will fall disproportionately on smaller businesses; and greater numbers of tribunal cases on an already overloaded tribunal system. But the most important impact is on people who are looking for work, especially those with riskier profiles: young people trying to get their first step on the employment ladder; people trying to get off benefits; people with health issues; people changing careers; ex-offenders and so on. The Government rightly want to get all of these into work, but the Bill will make that more difficult, not easier.
The current law, with the two-year qualifying period, allows an employer to take a risk on someone—to give them the benefit of the doubt—without facing the risk of an employment tribunal claim if it does not work out. This Bill ends that. An employee will be able to claim for unfair dismissal from day one, and the only valid grounds for fair dismissal will be capability or qualification to do the job, conduct by the employee or some other undefined substantial reason relating to the employee. These reasons are essentially the same as the current reasons for fair dismissal after the qualifying period in today’s law, and they cannot be changed by the regulations that the Government intend to use to create a new—again undefined—type of probation period. Employers will no longer be able to let someone go during a probation period because it is not working, without risking an unfair dismissal claim.
So what will be the result? Simply, employers will now have to think twice before hiring anybody with a less than perfect employment record. The Bill will make it harder for an employer to take a chance on such people, to give them the benefit of the doubt. To quote the Federation of Small Businesses:
“all it’s going to do is make small employers more reluctant to recruit and fearful of being open to vexatious claims … It’s those furthest from the jobs market who will then suffer, because the less risk small employers can afford to take, the fewer second chances, fresh starts and first jobs they’ll be able to offer”.
If anyone is in any doubt, the Government themselves state the same effect in the impact assessment. I will not repeat what the noble Lord, Lord Sharpe, quoted, but this is what the Government also know and think.
We already have a million young people not in employment, education or training—the so-called NEETs. If we want to solve that, we need employers who want to take them on, who will take a chance and give them that first all-important opportunity. So, why on earth would we want to make it riskier for employers to take that chance?
You would think, therefore, that there must be a good, well-evidenced reason why this Government would decide knowingly to make it more difficult for young people to get their first opportunity to work. I have asked several times during this process for evidence that the existing law is in fact causing any problem. There is no evidence given in the impact assessment, and I have had no real answer to that question. In Committee, the Minister’s answer was:
“We have worked with academics who are looking at this subject. I reassure the noble Lord that we have looked at this and are confident that the benefits in this particular case will outweigh the risks”.—[Official Report, 21/5/25; col. 333.]
That really is not good enough to take action that the Government themselves acknowledge will damage the life chances of the most vulnerable or those just starting out.
Employers do not dismiss people lightly, even during a probationary period; hiring and training are expensive and time-consuming, so employers are strongly incentivised to try to get it right. But it is a fact of life that sometimes, with no fault on any side, things do not work out.
As the Minister knows, the noble Baroness, Lady Finlay of Llandaff, wanted to speak in this debate, but, unfortunately, she cannot be here today. She has asked me to point out the impact this change could have on GPs. Not being able to let someone go if the fit or culture is wrong is extremely serious for a small business—as the noble Lord, Lord Sharpe, described—but in a GP practice it could put lives at risk. GP practices tend to be small teams who must work together well and with great understanding and support. An employee who does not fit with the rest of the team could lead to miscommunication, appointment issues and so on. In healthcare, such errors could compromise patient welfare and could even have fatal consequences. It is essential that people can be easily let go if it is not working out in the early stages of their employment.
Baroness Jones of Whitchurch (Lab)
My Lords, as we have said before, we will continue to consult on this but that is our preferred option at this stage. We think that is a reasonable balance between the current arrangements and some of the proposals we have before us today.
Lord Sharpe of Epsom (Con)
My Lords, I am enormously grateful to the Minister for her response. It was remiss of me earlier not to thank the noble Lord, Lord Vaux of Harrowden, and my noble friend Lady Neville-Rolfe for signing various amendments. I am grateful to the noble Lord for his comprehensive and powerful speech, and for reminding us of the comments made by the noble Baroness, Lady Finlay of Llandaff, about GP surgeries.
As the noble Lord, Lord Goddard, pointed out, we have heard from the police, doctors, businesspeople, lawyers, vets and the clergy, and there was no argument in favour of the status quo but there were powerful arguments for common sense. I wonder whether the silence from the Government Benches indicates a degree of unease in what we are debating—a change that will fundamentally alter the balance of risk in hiring, at a time when unemployment has risen in every month that this Government have been in power.
This clause will do nothing to promote fairness in the workplace. It will erode flexibility, choke opportunity and harden the barriers that those on the margins already face. The Minister argued that employers have nothing to fear from tribunals, but the Government’s own impact assessment says that they expect the number of cases to rise by 15%, so I am afraid I do not follow the logic of her argument.
Also, the Government’s own impact assessment admits—I will repeat this, even though the noble Lord, Lord Vaux, did not—that introducing day-one rights to claim unfair dismissal would
“damage the employment prospects of people who are trying to re-enter the labour market, especially if they are observed to be riskier to hire”.
As the noble Lord said, the Government already know that, so why are they doing this?
The noble and learned Lord, Lord Phillips of Worth Matravers, asked a very to the point question, and the noble and right reverend Lord, Lord Sentamu, made an argument based on his experience. Both noble Lords were, in effect, making the point that this is also the compassionate thing to do.
This clause is not ready, safe or wise. We need to avert what my noble friend Lady Neville-Rolfe described as a “looming tragedy”. Therefore, I seek to test the opinion of the House.
Lord Sharpe of Epsom
“1 Section 108 of the Employment Rights Act 1996 (qualifying period of employment) is amended as follows—(a) in subsection (1) omit “two years” and insert “six months”;(b) after subsection (5), insert—“(6) Subsection (1) does not apply if section 4(3)(b) of the Rehabilitation of Offenders Act 1974 (read with any order made under section 4(4) of that Act) applies.”.”Member’s explanatory statement
This amendment reduces the qualifying period for unfair dismissal from two years to six months, leaving in place the existing exceptions to that qualifying period in section 108(3) of the Employment Rights Act and adding a new exception in relation to spent convictions.
Lord Sharpe of Epsom
Member’s explanatory statement
This amendment provides that the initial period of employment begins after the qualifying period for unfair dismissal.
Lord Sharpe of Epsom (Con)
My Lords, I shall speak to Amendments 105, 107 and 159 in my name. On Amendment 105, the Government are well aware that this Bill, in particular Part 1, will have a detrimental effect on seasonal work and seasonal industries, but they have failed to provide any clear definition of what seasonal work is. We therefore think it is essential that the Bill includes a precise definition to protect those vital sectors to ensure that the law reflects their unique and fluctuating nature. We are discussing the lives and livelihoods of thousands who work not in rigid year-round roles but in the beating heart of seasonal industries, such as agriculture, hospitality, tourism and the performing arts. Their work ebbs and flows with seasons, festivals, harvests and holidays, not according to neat quarterly reporting periods. Yet, under the present draft, a 12-week reference period is being proposed as a basis for determining what constitutes an established pattern of work.
Let us pause on that. Twelve weeks—barely three months or, one might observe, the precise duration of just one of the four seasons—is being treated as a sufficient measure for sectors whose very nature is defined by unpredictability and periodic intensity. That is not only an inadequate metric but, in many cases, an actively misleading one. A fruit farm may employ hundreds in May and none by August. A theatre technician might work flat out during festival season and then have no engagements for months, or be working elsewhere. A seaside hotel may be bustling in July but deserted in November. To take a short-term temporary rise in demand and then draw long-term legal assumptions from it about continuity of work is not merely a flawed approach but deeply unfair to both employers and workers.
Businesses cannot predict with such precision. They cannot bind themselves to a rhythm that the market does not keep. If they are forced to do so, they will, understandably, become more cautious. They will hire fewer people, reduce opportunity and retreat from flexibility altogether. Flexibility is not a sin, nor is it bad for an economy. In many cases it is the only practical means by which people—students, carers, parents and artists—can participate in the labour market. We must not make mistake irregularity for instability, nor seasonal work for insecure work.
This amendment does something elegant and essential: it defines seasonal work in clear, practical terms; it captures its recurring yet temporary character, grounded in the real operational rhythms of key sectors; and, crucially, it instructs the Secretary of State to have regard to this definition when drafting regulations. That is not an escape clause; it is a safeguard against blunt policy-making. We are not asking for a loophole; we are asking for recognition that not all labour is uniform and not all employment patterns can or should be squeezed into the same regulatory mould. If we pass this Bill without such a safeguard, we risk chilling seasonal hiring altogether—not protecting workers, just denying them opportunities.
I am grateful to my noble friend Lord Roborough for signing Amendment 107 and I look forward to hearing the answers to the questions that he asked, particularly on the suicide statistics. I hope the Minister is able to address those. Before turning to the matter at hand, I must begin with an unequivocal condemnation of the Government’s recent family farms tax policy. This disastrous measure has placed an unbearable strain on family farms, which are the very foundation of our rural communities and the heart of our national food security. Instead of supporting these hard-working families, the Government have chosen to punish them with policies that threaten their very existence. I urge the Government to commit today to reversing this tax immediately for the sake of our farmers, our countryside and our country.
Having said that, I turn with equal concern to the Employment Rights Bill. Although this Bill’s goal is to enhance worker protections, which is commendable, it tragically fails to take into account the unique realities of farm businesses and seasonal work. As we have heard, farming is unlike any other industry. It is defined by seasonal peaks and troughs, by work that is dictated by the weather and the cycles of nature, and by labour demands that can change from one week to the next. To impose inflexible employment rights designed for stable year-round jobs on these seasonal industries is to misunderstand them fundamentally.
Take, for example, the proposal to extend unfair dismissal rights from day one of employment, which we have just discussed, or the Bill’s restrictions on zero-hours contracts, which would further exacerbate some of these issues. Zero-hours contracts in agriculture are not a tool of exploitation but a necessary mechanism for managing the ebb and flow of seasonal labour. Moreover, the proposal to require compensation for cancelled shifts fails to consider farming’s intrinsic unpredictability. Decisions about work can hinge on weather conditions that change with little notice. To expect farmers to pay for cancelled hours when fields are unworkable is simply unrealistic and unfair.
Even the Bill’s provisions on the right to request flexible working place an undue burden on farmers. Agricultural work is highly seasonal and task driven, as my noble friend Lord Roborough explained. That makes flexible working requests difficult to accommodate in practice. Raising the threshold for employers to refuse these requests will hamper farms’ ability to plan and respond to fluctuating labour needs.
That is why Amendment 107 is not merely desirable but essential. By introducing a clear baseline definition of seasonal work, the Bill can be tailored to reflect the cyclical, temporary and weather-dependent nature of agricultural labour. This amendment recognises the reality of these industries, allowing for the necessary flexibility that the Bill currently denies.
Without this amendment, the Government risk imposing a one-size-fits-all regime that will force many farms to cease hiring, increase costs or even close altogether, yet again devastating rural communities and endangering our food security. I urge people around the House to support this amendment and send a clear message that the law must work with and not against the realities of seasonal work. Yes, we must protect workers, but let us also protect the farms and farmers who feed this nation.
I am grateful to the noble Lord, Lord Londesborough, for supporting Amendment 159. A few years ago, in a remarkable TV interview, a one-time Labour shadow Chancellor could only suggest “Bill somebody” when asked to name a business leader who supported Labour’s policies. Sadly, this Government’s Employment Rights Bill risks the same fate. Ministers cannot name a single small business that supports all the measures contained within it—if any exist at all. This Bill is being rushed through with little regard for the very businesses that form the backbone of our economy. The Government’s own impact assessment hints at a looming disaster but fails to fully capture its devastating effects.
The Federation of Small Businesses warned that this Bill is weighing heavily on the minds of small business owners, already forcing them to put investment and job creation on hold at precisely the moment when they are most needed. The noble Lord, Lord Londesborough, cited the ICAEW, and the Institute of Directors recently revealed that 72% of businesses believe this Bill will harm growth with 49%, so nearly half, saying they intend to hire fewer staff as a direct result.
Yet the Government insist that businesses will simply absorb these costs—a statement that is not only unrealistic but dismissive of the precarious financial position many small enterprises face. Larger firms may weather the storm but small businesses often survive on razor-thin margins, and their survival will come at the cost of lower wages, reduced opportunities, or a reluctance to hire new staff at all. The Office for Budget Responsibility has warned that these sweeping new regulations will likely have
“material, and probably net negative, economic impacts on employment, prices, and productivity”.
That, I fear, is masterly understatement.
Crucially, the Government have missed one vital fact—competition between employers, not simply regulation, best protects workers’ rights. Employers who want the most productive, loyal and committed workers must offer better pay and conditions to attract and then keep them. This natural market dynamic encourages fairness and opportunity far more effectively than heavy-handed mandates. This Bill would distort competition by imposing complex rules and costs that distract businesses from focusing on growth and innovation. Instead, they will divert precious resources into managing compliance and legal risk, and into erecting barriers rather than enabling opportunity. Ironically, this will lead to fewer businesses competing for talent and therefore fewer jobs being created.
The Government claim that these rules will improve job security and working conditions, but the reality is that the increased costs and risks will force many small businesses to rethink their hiring plans altogether. The FSB says so. They will either hold back on creating new jobs or cut existing ones, and some will reduce wages or cut hours to survive. The intended protections risk backfiring, making work less secure and less rewarding. Ultimately, the costs imposed by the Bill amount to a stealth tax that will fall directly on the workers themselves—an opportunity tax. Employers faced with higher compliance costs, the risk of costly tribunals and the restrictions on flexibility will have little choice but to pass these expenses down the chain. This means lower wages, fewer hours and fewer job opportunities, ensuring, paradoxically, that work simply does not pay.
I will say a quick word on my noble friend Lord Leigh’s Amendment 106. This Government like a consultation, but they have been unable to name any business they have consulted in relation to Part 1. My noble friend’s amendment is therefore elegant in its simplicity. It channels the Government’s enthusiasm and corrects their omission. I will support it if he chooses to divide. Finally, I remind the noble Lord, who I think is answering, that the noble Lord, Lord Howard, asked a very good question. Lest he has forgotten it, I would like to re-ask it.
Lord in Waiting/Government Whip (Lord Leong) (Lab)
My Lords, I am grateful to all noble Lords who have spoken in this debate. Amendment 94 from the noble Baroness, Lady Noakes, would exempt specific groups from all or some of the provisions within Part 1. Since the 1980s, UK reforms have stripped back workers’ employment rights and turned the country into an outlier among advanced economies. The UK’s productivity has stalled more sharply than in other economies, with millions trapped in low-paid, insecure and poor-quality jobs. What is the result? Less money in working people’s pockets.
We are now paying the price. Millions of working people cannot afford basic living costs. In one of the world’s wealthiest nations, workers are still turning to food banks. Many cannot afford rent, let alone a mortgage. Morale is at rock bottom; motivation is vanishing. Average salaries have barely increased from where they were 14 years ago. The average worker would be over 40% better off if wages had continued to grow as they did leading into the 2008 financial crash, yet executive pay keeps climbing. In 2023 the average FTSE 100 CEO earned 118 times the pay of the median UK worker, up from 50 times in the late 1990s. This is not sustainable, not fair and no way to build a healthy, productive economy. The UK must stop treating worker protections as a drag on growth. They are the foundations of it.
More than 2 million people could benefit from guaranteed hours and rights to payment on zero-hours contracts. More than 9 million people would benefit from protections against unfair dismissal from day one. Up to 1.3 million employees will get a new entitlement to statutory sick pay. These new rights, entitlements and protections provide a baseline minimum standard for security and dignity at work. They should not be something the Government of the day can freely take away. Furthermore, exempting any category of person that the Secretary of State deems fit will ultimately create a two-tier system of employment rights based on the politics of the day. While I understand the noble Baroness’s intentions, I reiterate that these provisions were manifesto commitments.
Business confidence is at a nine-year high, according to the Lloyds Business Barometer—
Lord Sharpe of Epsom (Con)
Before the noble Lord sits down, he has put up a heroic defence based on a variety of statistics, but is he aware of the latest survey from the ICAEW—the chartered accountants? It is regarded as very representative, surveying over 1,000 companies of various sizes. The survey shows the fourth quarterly decline in business confidence and that the expectations for employment are at their lowest level since the third quarter of 2020.
Lord Leong (Lab)
We got into government one year ago, after 14 years. Business confidence was very low then, and at the same time unemployment was on the rise. At the end of the day, we are making progress. The figures will take time to change, but I am confident that confidence will grow. Inward investment is coming in, which means more investment in business and growth. Furthermore, the FTSE index reached the 9,000 mark yesterday. What does that say? People have confidence to invest in British companies, so let us not talk down the economy.
Lord Sharpe of Epsom (Con)
My Lords, I cannot let that pass. The noble Lord will know that the FTSE represents mostly foreign earnings. It is not a domestic index.
Baroness Noakes (Con)
My Lords, I thank all noble Lords who have taken part in this debate, which has covered quite a lot of ground. I cannot pretend to be anything but disappointed in the Minister’s response. In fact, the first chunk of his response seemed to be some kind of lesson in the socialist view of life and had nothing to do with any of the amendments. While I respect the Minister’s own business expertise, he does seem to demonstrate that this Government do not understand business and do not understand the key to successful economic management.
I was pleased to hear that my noble friend Lord Leigh of Hurley intends to test the opinion of the House. I hope my noble friends on the Front Bench will seek to do the same when we reach their amendments in their places on the Marshalled List.
I was of course disappointed, but not surprised, that the Minister was not prepared to accept my generous offer of a reserved power to create exemptions to get the Government out of trouble in due course. I hope they do not come to regret their decision. You can take a horse to water, but you cannot make it drink. I have taken the government horse to water, and it has refused to drink. On that basis, I beg leave to withdraw my amendment.
Lord Leigh of Hurley (Con)
I rise to say simply that, in my experience, I have found that employees want to bring with them family members, often parents—particularly women want to bring a parent—and I am not sure that this will allow that anymore.
Lord Sharpe of Epsom (Con)
I thank the noble Baroness, Lady Fox of Buckley, and the noble Lord, Lord Palmer of Childs Hill, for their amendments and their introductions. I speak strongly in favour of these amendments, which address a crucial gap in the rights currently afforded to workers.
At its core, this is about fairness, autonomy and dignity; it is about giving working people real choice and a real voice when it matters the most. As we have heard, under the current law, a worker facing a disciplinary or grievance hearing has the right to be accompanied, but only by a fellow worker or a trade union representative. What of the workers who are not in the union, which, as the noble Lord, Lord Palmer of Childs Hill, and my noble friend Lord Ashcombe pointed out, is most of them? What of those who work in small businesses, where asking a colleague to attend is uncomfortable or perhaps even counterproductive? What of those sectors in which peer support simply is not realistic? We must not confine workers to a narrow and outdated list of whom they are allowed to bring into the room at a time of maximum stress and uncertainty. As the noble Baroness, Lady Fox, so powerfully illustrated with her real-world examples, that causes problems.
This amendment would bring common sense, compassion and modern flexibility into law. This is about worker autonomy, trusting people to decide whom they need in the room with them. If we are truly to modernise employment rights, either amendment should be accepted.
Lord Palmer of Childs Hill (LD)
My Lords, I have signed this amendment in support of the noble Baroness, Lady Penn. I will not add to what many noble Lords have said, but I want to deal with one point.
The noble Lord, Lord Jones, talked about being too prescriptive. We need such prescription to help new fathers. The idea that this is mind-boggling is ridiculous. It would extend paternity leave from two weeks to six weeks, at 90% of pay. We are not talking about a revolution. We are talking about a modest increase to make some connection between fathers and their children in their very early years. It is needed, because the UK has the least generous paternity leave in Europe. It is good for fathers, bonding and mental health. It supports mothers, with a more equal division of care, and it is good for children’s development. It supports business, because employees will be happier, more contented and not stressed with trying to get back to the family home and their young children. This is not revolutionary. This is a modest step forward. I was delighted to be able to sign the amendment of the noble Baroness Penn, which we on these Benches support.
Lord Sharpe of Epsom (Con)
My Lords, I am grateful to my noble friend Lady Penn for bringing forward this amendment, which raises matters of genuine importance to families, working parents and, frankly, society as a whole.
The arguments that my noble friend has made for extending non-transferable paid leave for fathers and second parents is a serious and well-intentioned one. A more balanced system of leave can play a role in promoting gender equality, increasing participation in the labour market and supporting children in their earliest years. As my noble friend explained, it is therefore good for fathers, mothers and children.
I wholeheartedly agree that we should continue to review and refine our parental leave system so that it remains fit for the realities of modern working life. The commitment in proposed new subsection (1) to a comprehensive review is, in itself, a sensible and comprehensive step. I note that this was a manifesto commitment that should have been completed by now, yet the Government are only just starting it. Given the Government’s enthusiasm for consultation, that seems curious to say the least.
We must recognise and acknowledge the broader context in which we find ourselves. The Employment Rights Bill, as it stands, already promises to impose significant new obligations on businesses, at a time when many are still struggling with the increase to employer national insurance contributions, the Government’s constant U-turns, inflation and ongoing global economic uncertainty. Frankly, the Government have asked a great deal of British businesses in the last year—too much, in the view of many—and the effect of these measures has been entirely negative, undermining growth, reducing our competitiveness and rapidly stifling job creation, especially at the margins. If the Government were to think again and accept some of our perfectly reasonable amendments—on the right to request an unfair dismissal, for example—it would be easier to argue in favour of amendments such as this, which could be implemented after careful consultation with business.
While the intentions behind this amendment are commendable and there is certainly room for discussion about the long-term evolution of paternity and shared parental leave, without wider changes from the Government to their most damning plans, this is not the time, nor the Bill, in which to make these commitments. However, I hope the Government will continue to engage seriously with the questions and the comprehensive arguments advanced by my noble friend, and that we will revisit them in a context that allows for a comprehensive economic and perhaps demographic evaluation, along with genuine and meaningful consultation with businesses of all sizes and shapes, and indeed wider society as a whole.
Baroness Jones of Whitchurch (Lab)
My Lords, this has been an important debate on the issue of parental leave and pay. It has been wonderful to hear consensus on how important some of these fundamental issues are to individuals and to our society. I thank the right reverend Prelate the Bishop of Newcastle, the noble Baroness, Lady Penn, and my noble friend Lady Lister for their prior engagement on these important issues. The noble Baroness, Lady Penn, spoke eloquently and with conviction on these matters. I assure her that it is a conviction that I and the Government share.
We need to reform our confusing patchwork of parental leave and pay rights so that they are fit for a modern economy and deliver the wider societal benefits that noble Lords have raised in this debate. The Government are committed to making life better for families and we know that the current system needs improvement. This is why, through this Bill, we are making paternity leave and parental leave day-one rights, meaning that employees will be eligible to give notice of their intent to take leave from the first day of their employment. This brings these entitlements in line with maternity leave and adoption leave, simplifying the system. We are removing restriction preventing paternity leave and pay being taken after shared parental leave and pay to further support working parents in accessing these entitlements. Crucially, the changes in this Bill are not the limit of our ambitions.
Moving specifically to the amendments, Amendment 100 was tabled by the noble Baroness, Lady Penn. While I appreciate what the noble Baroness is attempting in her amendment, I regret that the Government cannot accept it. Let me reassure her that work is already under way to deliver on the spirit of her amendment. Since Committee, the Government have delivered on their manifesto commitment to launch their parental leave review. In doing so, they have listened carefully to concerns raised by noble Lords and stakeholders as to the details and scope of that review.
To answer the questions from a number of noble Lords, the published terms of reference make it clear that all current and upcoming parental leave and pay entitlements will be in scope of the review. The review gives us a chance to consider what we want the system to achieve, while giving due consideration to balancing costs and benefits to families, businesses and the Exchequer. As stated in the published terms of reference, we expect the review to run for 18 months. This will conclude with the Government producing a set of findings and a road map, including next steps for taking the reforms forward to implementation.
In response to my noble friend Lady Lister, we will want to engage and consult with stakeholders throughout that process to inform the conclusions of our work. In response to my noble friend Lord Jones, the call for evidence is already live; it began on 1 July.
I stress that the fact that the review is a manifesto commitment underlines the seriousness with which we are taking it and our obligation to act on its conclusions. However, we cannot predetermine the outcome of the review, nor can we justify the proposed cost increase without a thorough evidence-based assessment. This is why we cannot accept an amendment that would place a duty on the Secretary of State to lay regulations that would almost quadruple the rate and triple the length of paternity pay from current levels.
Amendment 102 seeks to make paternity pay a day-one right for all employees by removing the current continuity of working requirements. I reassure all noble Lords that we understand the importance of fathers and partners having time away from work to support their partner and to be with their developing family. As we have heard, the Secretary of State at the Department of Business and Trade recently met with Dad Shift and others at the launch of the review to hear first hand about their campaign. We are determined to do everything we can to encourage proper shared parenting for the improved well-being of both the parents and the children involved.
While we are removing the qualifying period for paternity leave to make it a day-one right, statutory pay remains conditional on an average earnings test and a requirement to work for the same employer for 26 continuous weeks. This is standard across all statutory parental pay work entitlements, including maternity pay. The only exception is maternity allowance, which is a benefit, not a work entitlement. Maternity allowance is designed to support health and recovery following childbirth for those who do not qualify for maternity pay.
Lord Sharpe of Epsom
“Definition of seasonal work(1) In making regulations under Part 1 of this Act, the Secretary of State must have regard to the specific characteristics and requirements of seasonal work as defined in subsection (2).(2) “Seasonal work” means work that—(a) is performed during a particular period or periods of the year,(b) recurs substantially in the same periods each year,(c) is directly linked to a predictable and temporary increase in demand for labour during those periods,(d) includes work in sectors where such patterns are common, including but not limited to—(i) agriculture and horticulture,(ii) the creative industries, including theatre and live performance,(iii) retail,(iv) hospitality, and(v) tourism and events, and(e) is entered into for a fixed duration not exceeding 26 weeks to meet the temporary demand.”Member’s explanatory statement
This amendment introduces a baseline definition of “seasonal work” to clarify its recurring and time-limited nature for the purposes of the Act.
Lord Sharpe of Epsom
“Exemptions for individuals employed by a farm business(1) Sections 1 to 13, 23, and 26 of this Act do not apply to employment by a farm business.(2) For the purposes of this section— “farm business” means any business, undertaking or activity carried on wholly or mainly for the purposes of agriculture, horticulture or forestry, and includes—(a) the growing of crops, including cereals, fruits, vegetables and flowers;(b) the rearing or fattening of livestock or poultry;(c) dairy farming;(d) the management of woodlands where ancillary to agricultural operations;(e) land used for grazing, mowing or market gardening;(f) any business conducted on land that is occupied under a farm business tenancy within the meaning of section 1 of the Agricultural Tenancies Act 1995 or section 109(3) of the Agriculture Act 1947.”Member’s explanatory statement
This amendment exempts all individuals employed by a farm business from the application of Sections 1 to 13, 23, and 26 of the Act.
Lord Sharpe of Epsom (Con)
My Lords, British farmers have been hammered by this Government. Requiring farmers to give guaranteed hours and day one rights on sick pay and unfair dismissal, as well as to make payments for cancelled shifts, is unworkable, so I would like to test the opinion of the House.
Lord Holmes of Richmond (Con)
My Lords, I will be blessedly brief. I tabled a similar amendment on this issue in Committee to ask the Government, through the Bill, to introduce regulations to designate a body to bring clarity, consistency and fairness and, in effect, to level the playing field in this area of umbrella businesses, on which the Bill is curiously silent. These entities differ dramatically from other sectors of the employment market, the recruiter market and many other sectors of the economy in not having consistency and clarity of approach in how they are treated.
My amendment in Committee suggested the designation of a body to address this issue. At that stage, it was taken by the Government and others around the Committee that I was suggesting the creation of an additional body. Not a bit of it. It was about the designation of an existing body rather than the creation of a new one. With this amendment on Report, I have moved that on and seek to ask the Government to introduce regulations to ensure that existing codes of practice in good standing—ways of operating that all bona fide businesses in this sector of the market already adhere to—apply to all umbrella businesses.
This extraordinarily moderate amendment would bring fairness, clarity, consistency and a levelling of the playing field. I very much hope the Government will accept it. I beg to move.
Lord Sharpe of Epsom (Con)
My Lords, I thank my noble friend Lord Holmes of Richmond for his Amendment 110. What this amendment does is simple but important. It encourages the Secretary of State to ensure that in bringing forward regulations under the Employment Agencies Act 1973, they draw upon existing recognised certifications and industry standards. These standards, developed and refined by responsible actors within the market, offer a ready-made baseline for compliance which the Government can and should use.
There is consensus that regulation of umbrella companies is overdue, but as we take this opportunity, let us ensure that the regulation is done well and in a way that is pragmatic, proportionate and effective. This amendment helps point us in that direction, so I hope the Minister can offer some reassurance that the spirit of the amendment will be reflected in the Government’s approach to umbrella companies.
Lord Katz (Lab)
My Lords, I am grateful to the noble Lord, Lord Holmes of Richmond, for tabling Amendment 110, which covers the regulation of umbrella companies. The amendment seeks to place an obligation on the Secretary of State to utilise pre-existing industry codes and accreditations as a basis for the regulation of umbrella companies.
We recognise the important role accreditation and trade bodies play in sharing information and best practice with their customers and members. The work of these bodies in the umbrella company industry has had some success in driving up standards. However, this success has been fairly limited, and we would not want to assume that an organisation that is a member of an accreditation or trade body is necessarily compliant with everything. We therefore believe that now is the right time for the Government to step in to protect businesses that already do the right thing and also protect workers.
Many in the umbrella company industry, and those who use umbrella companies, welcome regulation, especially as it will help to level the playing field. This includes public positions taken by the Freelancer & Contractor Services Association, Contractor Calculator, the Recruitment and Employment Confederation and several other bodies’ responses to the consultation run under the previous Government.
We have been clear since Clause 34 was introduced to the Bill that the Conduct of Employment Agencies and Employment Business Regulations 2003 will be amended to apply to umbrella companies. The Government recognise that the regulations in their current form are not appropriate to regulate the activities of umbrella companies. That is because the regulations predominantly focus on entities providing work-finding services or supplying individuals to end clients, which, generally, umbrella companies do not do. Where umbrella companies do provide such services, they would indeed already be covered under the regulations.
The Government have a statutory requirement to consult before any changes are made to these regulations, and as referenced in the recent roadmap publication, the consultation on umbrella companies regulation will be published this autumn. As part of the consultation process, the Government are keen to get views from trade unions, workers and industry bodies in the umbrella company sector. This will enable the Government to better shape policy development. Following consultation, an appropriate and proportionate umbrella company regulatory regime will be introduced in 2027. Once those regulations come into force, they will be enforced by the Fair Work Agency, which will take a risk-led and intelligence-led approach to its compliance regime.
I hope this provides some of the reassurance that the noble Lords, Lord Holmes and Lord Sharpe of Epsom, were seeking, and for that reason I ask the noble Lord, Lord Holmes, to withdraw his Amendment 110.
Companies House: Filing of Annual Accounts by Small Companies
Lord Sharpe of Epsom Excerpts(3 months, 2 weeks ago)
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Lord Leong (Lab)
The noble Baroness has obviously read various newspaper reports. I suggest to her, “Don’t believe everything you read from the papers”. As it stands now, most companies have to file abbreviated accounts, which, as the noble Baroness will know, is just a balance sheet. We are asking under this Act for them to file accounts. As I said earlier, we recognise the concerns raised by various stakeholders and we will set up next steps to address those recent concerns. When this happens, a statutory instrument will be placed and noble Lords can debate it.
Lord Sharpe of Epsom (Con)
My Lords, obviously, we welcome sensible steps to reduce unnecessary burdens on small business, but, given the alleged decision to reverse the reforms to small business account filing, have His Majesty’s Government done the necessary work to ensure that reduced financial transparency does not damage creditor confidence, does not hinder investor due diligence and does not restrict access to finance for small companies?
Lord Leong (Lab)
The noble Lord is absolutely right. It is important that people must be able to rely on the data that is on file with Companies House, whether they are doing business with a particular company or to determine whether the company’s financial statements are accurate. Most companies file their accounts on time and accurately. A small minority of companies do not file their accounts on time or, perhaps, properly. This Act hopefully will go after those small companies. We are not imposing burdens on small businesses. We just want to tackle economic crime.
UK Modern Industrial Strategy
Lord Sharpe of Epsom Excerpts(3 months, 3 weeks ago)
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Lord Sharpe of Epsom (Con)
My Lords, I genuinely admire the intent of the industrial strategy. The sectors that it highlights are sensible. I like the aspiration to focus on all regions and to nurture clusters. All that is very good, but it is a list of aspirations; it is not a strategy. A strategy is a plan of action designed to achieve a long-term or overall aim, and this is not that. All the aspirations in it are good and no one could reasonably argue with them, but the economy and the growth we need will not be delivered by this, or by fine words and noble sentiments.
Growth is not a slogan, it is a result. Indeed, the introduction to the industrial strategy says that
“the Government’s priority mission is to deliver strong, secure, and sustainable economic growth”,
but the Government continue to mistake the former for the latter.
Despite the Chancellor’s triumphant declarations that growth is the number one priority, the harsh reality confronting British businesses tells a starkly different story. The Governor of the Bank of England has delivered a sobering assessment that should give this House pause. He has categorically dismissed the Chancellor’s claims that Britain’s economy has turned a corner, warning instead that growth is slowing precisely because high taxes are biting deep into our economic foundations.
The Governor’s analysis is both precise and damning. What the Chancellor has hailed as evidence of economic recovery is nothing more than a temporary blip driven by fleeting factors that will not be repeated. British businesses, rather than preparing for prosperity, must now brace themselves for an economic slowdown of this Government’s making.
The employment figures alone should shame any Administration who claim to champion working people. Unemployment has risen every single month—all nine months—since the Government took office. This is not coincidence; it is consequence.
Perhaps most telling is the collapse in Britain’s international standing as an investment destination. The number of foreign direct investment projects has plummeted to the lowest level since records began 18 years ago. According to EY, the Government have made the UK a less attractive place to do business than Oman, the Czech Republic and Saudi Arabia. Before the Chancellor’s Budget last year, a PwC survey ranked the United Kingdom as the second most attractive place for investment in the world. That is our record: their record is destroying that competitive advantage in less than a year.
The human cost of these policy failures is becoming increasingly apparent. The British Chambers of Commerce has revealed that almost one-third of small and medium-sized employers have made redundancies or are actively contemplating job cuts as a direct consequence of the Government’s decision to hike employers’ national insurance contributions. Its survey of over 570 member firms found that 13% had already wielded the axe, while 19% were sharpening it for future use.
In times of global uncertainty, businesses look to their own Governments for stability and support. Instead, this Government have chosen to pile domestic chaos upon international volatility. They have created a perfect storm of their own making. They speak eloquently of cutting energy costs while systematically pursuing policies that guarantee the opposite outcome. Their obsession with net zero has created an energy regime that punishes British businesses with costs five times higher than those faced by their American counterparts.
The introduction to the strategy says on page 33:
“There can be no plan for economic stability or sustainable growth that does not include a credible plan for net zero”.
That is obvious nonsense: of course there can. This is a choice, and publishing elegant explanations about how they are going to alleviate the worst effects of their own policies is simply baffling, but it is not strategy.
While pouring billions of pounds into subsidies for renewables, they steadfastly refuse to end the windfall tax on oil and gas companies or to issue new licences for drilling in the North Sea. They have turned their backs on our own North Sea resources, preferring instead to import energy from abroad rather than harness the secure—that word deserves repeating—and reliable supplies beneath our own waters. The result is an energy policy that reads like a masterclass in economic self-harm, and also puts us at a strategic disadvantage in a dangerous world.
It would be remiss of me if I did not acknowledge credit where it is due. The commitment to free trade principles offers a glimmer of hope, and recent trade agreements suggest that the Government have not entirely abandoned the opportunities that Brexit provides. However, if we are truly to harness these benefits, we need comprehensive free trade deals, not the minor economic agreements that currently pass for trade policy.
Their promise to reduce regulatory burdens by 25% reveals another layer of the Government’s duplicity. This sounds precisely like telling businesses what they want to hear, while doing the exact opposite in practice. The Employment Rights Bill alone, which they proudly champion, will impose £5 billion—the Government’s own impact assessment number—in administrative costs on British businesses and introduce a new agency, which is a regulator by any other name. How is that part of a strategy to reduce regulatory burdens?
I suspect that this £5 billionfigure will represent only the tip of the iceberg. What the Government have failed to factor into their calculations is the true cost of empowering trade unions to constantly disrupt business operations, of making it infinitely riskier and more expensive to hire workers, and of creating a labyrinth of legal obligations that will tie employers in knots for years to come. Small businesses, already struggling with the highest tax burden in a generation, will find themselves drowning in compliance costs that will inevitably dwarf the Government’s modest £5 billion estimate.
The impact on young people seeking employment is particularly troubling. At a time when youth unemployment demands urgent attention, the Government are making it more expensive and riskier for employers to take a chance on inexperienced workers. The Employment Rights Bill, whatever its intentions, will price young people out of the job market at the very moment they need opportunity most.
We have also witnessed a hat-trick of U-turns from the Prime Minister, including on welfare reform. We were told that these measures were necessary to get people back into work. I suspect that the Government are not that interested in that after all. What is the point of an industrial strategy if there is no industry left? Will the cost of this U-turn simply mean more taxes, or will the Minister unequivocally rule out further tax rises today?
The Government have shown they do not understand how wealth is created and how economies grow. You cannot tax your way to prosperity, you cannot regulate your way to competitiveness, and you certainly cannot lecture businesses about growth while systematically undermining the conditions that make growth possible. The question before us is simple: will the Government recognise that their approach is failing, or will they continue down a path that leads inevitably to economic decline? The evidence is mounting, the damage is spreading and time is running short.
Baroness Kramer (LD)
My Lords, we on these Benches remember how powerfully business welcomed the industrial strategy produced by Vince Cable during the coalition years, and the shock and dismay with which it greeted the Conservative decision, when that party was in government alone, first to weaken it and eventually to scrap it. Such a strategy is vital to drive business investment, good jobs and prosperity.
It was notable that the Conservatives not only scrapped the industrial strategy but sold off the Green Investment Bank. How different our energy position could have been today, had that not happened. They also readied the British Business Bank for sale; I remember direct conversations with Sajid Javid and his relief that it was to be done away with. It survived only because Covid struck and it was needed to distribute Covid loans.
Those constructive moves were pure ideology: in essence, it was private good, public bad. So I listened with interest to the Conservative Front Bench today and there is a change of tone but—my goodness—this country would have benefited had that change started a few years ago.
We find some common ground in one area. The Conservatives did not exactly name it, but we have talked about it in the past. Raising employers’ NICs, especially SME employers, was the wrong way to start the revival of business and enterprise.
We support core elements of the strategy, but we still have questions. My noble friend Lord Russell, if he has the opportunity to speak on this Statement, will talk much more about energy prices, because we welcome the help of a wider range of energy-intensive industries. But why would we wait another two years to find out who will qualify? What about the burden of electricity prices on service industries such as hospitality?
If the Government want to see a quantum growth in exports, the answer is surely to negotiate to rejoin the EU customs union. By comparison, everything else is small beer. Have the Government noticed today’s FT article charting the decline in productivity—especially in London, which is key to the economy—since Brexit? It played such a significant role, with its impact on business investment and the opportunity to participate in supply chains. This Government are keen on U-turns, so why not make a U-turn that would actually bring money into the country and the Treasury and work to find our way back into the EU customs union?
A business in rural England involved in agribusiness and farming would be asking, “Why does this strategy have so little for me?”, especially in an era of food insecurity, climate change and tariffs. Can the Minister elaborate and provide some reassurance? A business looking for skilled staff would welcome the funding boost for skills but ask, “Why not the fundamental reform of apprenticeships that we need, and where is lifelong learning?” Today’s report of a sharp drop in entry-level jobs surely underscores that need. Can they have a place in the strategy?
A creative reading the importance of data as an asset—in fact, the industrial strategy is quite good on the creative sector, but not on the importance of data as an asset—would ask why the Government have refused to strengthen copyright transparency rules to prevent the US mega-techs scraping intellectual property without recompense. Where is the logic and the justice, particularly when data is identified as critical?
An innovative small business would welcome the Government’s intention to use procurement to drive enterprise, but why do the rules still mean that the Government can then take the intellectual property of that small business and, on the grounds of transparency, give it to its competitors free of charge? This is an issue that my noble friend Lady Bowles raises often, and it still needs an answer.
One issue in particular grates with me. The Government have simply not grasped the need for access to finance for the whole breadth of small businesses, not just priority sectors such as high tech. To build our communities and make sure that good jobs and prospects are available everywhere, we cannot be in a position where small businesses grow from retained earnings only. We need a genuine community banking sector. The high street banks and most alternative finance is not interested in meeting the need. The British Business Bank has a small £150 million pot over the next two years to support community banking, but it is minimal compared, for example, to the $300 billion in community bank financing that is the backbone of small business finance and growth in the United States. Does the Minister understand that this is a missed opportunity?
In many ways, we see this industrial strategy as a positive and strong step forward, but we will not be in a full position to judge it until we see practical support and solutions. Implementation and delivery are key. I hope that, by the time we have such clarity, my noble friend Lord Fox, whose knowledge in this area is so much greater than mine, is back on these Benches. I can tell your Lordships that he will expect answers.
Lord Leong (Lab)
We are not abandoning any industry or sector. This strategy identifies the top-growing sectors, the IS-8 as we call them, which make up 30% of the total business sector in this country but contribute some 60% of the national economy. Obviously, it is the Government’s position to support them. As for retail, hospitality and others, we have other support plans in place; for example, the business rates scheme.
Let us not beat around the bush: the high street is changing and people’s shopping habits have changed but, at the same time, we need to revitalise the high street. Hopefully, when we publish the small business strategy in due course, it will cover how we will revitalise the high street. In other parts of the hospitality sector, be it cafés, restaurants or pubs, it is a very mixed picture. Some pubs are closing down, but not because we have come into government; they were closing down way before then. In the case of the pub in my village—a very small village pub—a year ago it seemed only a matter of time before it closed down. It was sold to a young couple, they changed it and now it is flourishing; you cannot even get a table there. So, pubs need to change.
Lord Sharpe of Epsom (Con)
Wait until the Employment Rights Bill passes—then you will get a table.
Employment Rights Bill
Lord Sharpe of Epsom ExcerptsTuesday 24th June 2025
(4 months ago)
Lords ChamberRead Full debate Employment Rights Bill 2024-26 View all Employment Rights Bill 2024-26 Debates Read Hansard Text Watch Debate Read Debate Ministerial Extracts Amendment Paper: HL Bill 81-XI Eleventh marshalled list for Committee - (20 Jun 2025)
Lord Sharpe of Epsom
“Social mobility impact reportingWithin 12 months of the day on which this Act is passed, the Secretary of State must publish an independent assessment of its impact on social mobility.”
Lord Sharpe of Epsom (Con)
My Lords, in some ways, we are continuing a theme with Amendment 313 in my name. The Government have talked about supporting those on the fringes of the labour market; this is a goal that I hope we all share. We know that different individuals face different work challenges, whether due to educational background, employment history, health circumstances or socioeconomic factors. The question before us is whether this legislation achieves that laudable objective or whether it inadvertently makes it harder for precisely those individuals whom the Government claim they want to help.
I start with the day-one right concerning unfair dismissal, and I pose a fundamental question: why would any employer take on what might be considered a high-risk hire? Why would they take a chance on a young person seeking their first opportunity? Why would they hire a student who did not attend a top-tier university? Why would they consider a person from a lower socioeconomic background, who may lack conventional credentials but definitely possesses untapped potential? When employers face immediate legal liability for dismissal decisions, they naturally become more risk averse in their hiring practices. They gravitate towards candidates with proven track records, established credentials and minimal perceived risk. This is not callousness; it is rational economic behaviour in response to the regulatory environment.
The Government’s refusal to include a meaningful probationary period at this stage compounds the problem significantly. I have little doubt that, fairly soon, the Government will be arguing that they intend to consult and to continue with a light-touch probationary regime, which, it is suggested, could last for up to nine months. That is all well and good, but what does it mean in practice? What does the phrase “light-touch” mean and how will it be defined? Who are they going to be consulting, and on what? What are the Government thinking about this? It needs to be in primary legislation. Make no mistake: this uncertainty is affecting business decision-making now.
It looks as if the Government fundamentally fail to understand that employment relationships involve mutual discovery. In the short term, virtually all jobs represent a cost to business. Employers hire workers not because they are immediately profitable but because they are confident that, over time, these workers will develop skills, reach their peak performance and productivity, and ultimately become a net benefit to the company or employing organisation. This process of development and mutual learning requires flexibility. It requires the ability for both parties to recognise when a match is not working and to part ways without excessive legal complexity. By removing this flexibility from day one, the legislation creates a powerful incentive to hire only the safest and the most predictable candidates—precisely the opposite of supporting those on the fringe of the labour market.
The same perverse logic applies to the day-one right to sick pay. Consider the position of someone who has been absent from the workforce for an extended period. There are businesses that will make a point of hiring such individuals, recognising their potential and being willing to provide them with opportunities. But now the cost calculation has fundamentally changed. An employer considering such a hire must now factor in the immediate liability for sick pay from day one, combined with an inability to part ways if the employment relationship proves unsuccessful. The rational response is fairly obvious: avoid the risk entirely.
This is not theoretical speculation; it is how labour markets function when faced with regulatory constraints. No amount of academic opinion can state otherwise. I urge the Government to review the impact on social mobility, so that they can adapt the legislation to avoid the unintended consequences I have highlighted. Like my noble friend Lord Deben on the last group, I would like to be proved wrong on this. If I am, I invite the Government to gloat to their hearts’ content about that, but I think we need the evidence. I beg to move.
Lord Jackson of Peterborough (Con)
My Lords, I support my noble friend’s excellent amendment, as we reach the end of Committee. Before I get into the substance of that, I will offer some praise. Noble Lords know that, last week, I took issue with the Government Front Bench about the potential lack of response to letters from individual noble Lords who had raised specific points during Committee. The noble Baroness, Lady Jones, who is no longer in her place, took some issue with that, resiled from my analysis and said that it was not the case. However, over the last few days, I have received a plethora of epistles from the Government in my email. As Private Eye may have said in the past, are those two occasions by any chance related? That was my praise; I thank the Government for coming forward with those letters and we will hold them to account when we reach Report. I am grateful for small mercies, nevertheless.
I commend to the Government the excellent report of the Social Mobility Commission, State of the Nation Report 2024: Local to National, Mapping Opportunities for All. I probably say this at every juncture, but my noble friend’s amendment is helpful, because there is a cross-party consensus that we should all be working to help young people in particular into work, innovative employment, and skills and training. As we all know, and as has been found by apolitical third parties such as the charity the Sutton Trust, which focuses on improving social mobility, there are disparities across the country. There are sectoral and geographic disparities, and disparities in people’s backgrounds, race, ethnicity, age et cetera. As far as is practicable, we should be designing legislation that tackles issues around improving life chances, training and skills, and innovation.
More fundamentally, we need to be designing legislation that tackles endemic, entrenched inequalities, and that is what this amendment is about. My noble friend Lord Sharpe of Epsom is absolutely right that this is about opportunity cost. Many employers, given the chance, will try to help young people by giving them a chance to improve their life chances and skills, and by paying for their exams and training, et cetera—via apprenticeships, for instance. But the legislative regime will be such that they are encouraged not to employ that person, because they may have a disability, may be late to the employment market or may not be socialised—they may not understand the protocols of going to work each day, of being on time and of being dressed smartly, which are very basic things that we take for granted. That risk aversity, employers not wanting to employ those people, will have a negative effect as the corollary of this Bill.
Ministers have a chance at least to engage with this amendment and, when we come to Report, I hope to accept it; it would make a real difference to the lives of people who find it tough to enter and stay in the employment market. I encourage Ministers to look at the report to which I referred, and at the work that has been done to support the Bill and its laudable objectives. My noble friend offers this amendment in good faith in order genuinely to improve the Bill. On that basis, I hope that the Minister will look on it favourably and incorporate its ideas into the finished Bill.
Lord Sharpe of Epsom (Con)
I thank the Minister for his answer. I am also grateful to my noble friends Lord Jackson, Lady Lawlor and Lady Cash for their supportive comments and to the noble Baroness, Lady Fox, who raised some very interesting points.
I gently suggest to the noble Lord, Lord Leong, that we are not just talking about it either; we are proposing to do something about it. We want to protect social mobility, which is why we have tabled this amendment. He sounded disappointed that we have to keep returning to this debate—so are we, but we do not feel that we are getting meaningful answers on the subject of the consultation, which we have brought up on numerous occasions. Until we get those meaningful answers, we will continue to return to this debate.
The Government may not deem a comprehensive impact assessment necessary for these provisions, but they have not given a satisfactory response to the serious concerns raised about social mobility and opportunity creation. In our opinion, this represents a failure to engage with the economic realities of how the employment market functions, and the Minister knows this as well as I do.
We must judge policies by their results, not their intentions. Results are not dependent on the nobility of our intentions but on the incentives that policies create in the real world. This Bill creates the wrong kinds of incentives. It incentivises employers to become more risk-averse, not more inclusive. It incentivises the hiring of safe, conventional candidates over those who might bring fresh perspectives but lack traditional credentials. It incentivises the protection of those already in employment at the expense of those seeking to enter it. In the words of the noble Baroness, Lady Fox, it disincentivises taking a punt.
Do not just take my word for it, take those of the Institute of Chartered Accountants in England and Wales. Its most recent survey stated:
“Members say that, at a time when the government needs business to drive growth by taking risks, the Bill, along with these other pressures, will make businesses more risk averse. ‘We worry businesses will start playing it too safe, choosing a “safe pair of hands” over bold, innovative talent that could drive real change’”.
These are not the incentives of a modern, dynamic economy that seeks to maximise opportunity and social mobility. They are the incentives of a system that entrenches existing advantages and fundamentally will make it harder for those without them to break through. We think that is a tragedy. This legislation will be judged a failure because of the standards its proponents have set for it. When employment opportunities for young people decline, social mobility stagnates and those on the fringes of the labour market find doors closing rather than opening, we will see the true measure of these policies, and that will be regrettable. I beg leave to withdraw the amendment.
Lord Clement-Jones (LD)
My Lords, I will see my noble friend Lord Fox tomorrow and I will tell him what he has been missing. I think the noble Lord, Lord Leong, is already making history by using the phrase “very, very soon”—or was it “very, very, very soon”? In my experience, I do not think I have heard that, so it is probably arriving tomorrow morning.
Amendment 318 seeks to introduce specific provisions for dependent contractors. It proposes the insertion of a new section into the Employment Rights Act 1996, by way of a new clause after Clause 150. It is intended to address a significant gap in our current employment law by recognising essential rights and extending them to a growing segment of our workforce. This is a serious and rather surprising omission from the Bill; certainly, it is a gap my party promised to fill in its manifesto last year. I feel an obligation to put this amendment forward today.
The Minister spoke about employment rights in a modern labour market. I do not believe we can secure proper employment rights in a modern labour market without addressing the issue of the dependent contractor. We know that the nature of work has changed and is changing. More and more individuals are engaged to perform work or services personally, relying primarily on a single employer or contractor for their income, yet they fall outside the traditional definitions of employee and fully autonomous independent contractor.
These dependent contractors are often subject to a degree of control over how, when and where they work, leaving them in a precarious position, without adequate employment protections. No doubt this Committee will be familiar with many of those who work in the gig economy—delivery workers, contracted drivers, piece-rate workers, home workers and even consultants who work almost exclusively for a single client. Granted, some Uber drivers and Hermes couriers went to court and managed to establish that they are in fact workers and not independent contractors, but more needs to be done. We need explicit statements about the status of such workers and explicit rights set out in this Bill.
The amendment seeks to rectify the situation by defining dependent contractor status clearly within the Employment Rights Act. Crucially, it proposes to extend several key employment rights to these individuals, treating some of the measures in the Bill as applicable to them. Specifically, this amendment would ensure that dependent contractors are entitled to the rights set out in proposed new subsection (2) of my amendment. This includes payment at or above the national minimum wage for all work performed; the right to payment for cancelled, moved and curtailed shifts, which mirrors the vital protections the Bill introduces for zero-hours workers; statutory sick pay from day one of sickness, aligning with the Bill’s improvements to SSP; day one rights to paternity and parental leave, and the new right to bereavement leave.
The amendment also includes a statutory right to disconnect from work-related communications outside of normal working hours, and protection from detriment for exercising this right, as the Bill establishes for other workers. It also includes protection from unlawful deductions from pay, and against discrimination. It further includes an entitlement to guaranteed hours if regular and predictable hours are worked for a defined period, moving beyond just the right to request and aligning with the new provisions for qualifying zero-hours workers.
It is also important to note that this amendment respects the distinct nature of dependent contractor relationships. It acknowledges that, unless specified otherwise in their contracts or by future regulations, dependent contractors would not automatically be entitled to statutory redundancy pay or general minimum notice periods for termination, so there would continue to be a distinction between employment and dependent contractor status.
Furthermore, the amendment would empower the Secretary of State to issue further regulations to define key terms and the specifics of these rights, ensuring flexibility and the ability to adapt to evolving working practices. It would also mandate the issue of guidance, including an online tool to aid in determining dependent contractor status in disputed cases. By accepting the amendment, we would have the opportunity to bring fairness and greater security to a significant and growing portion of our workforce. We could ensure that individuals who are deeply reliant on a single employer received fundamental employment rights reflecting the modern realities of the work. I very much hope that the Government will support this vital addition to the Bill. I beg to move.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Lord, Lord Clement-Jones, for his amendment. As we consider this legislation, it is timely to reflect on how it would interact with one of the most significant shifts in our labour market in recent decades: the rise of the gig economy. This sector has delivered considerable benefits, including increased flexibility, new income opportunities and innovative business models. It has allowed many individuals to engage with work on terms that suit their circumstances, whether as a primary or supplementary source of income.
However, with any new form of work comes a degree of legal complexity. Our current employment framework was designed largely in a different era—one where work tended to take place in fixed locations, during fixed hours and under traditional contracts. The gig economy challenges many of those assumptions. For businesses, this complexity can lead to inconsistencies in regulation, administrative uncertainty and litigation risk; for individuals, it can mean uncertainty about rights and entitlements, and for policymakers, it raises the broader issues of whether and how the legal definitions of employment need to evolve to reflect modern working practices.
The Bill, while not focused exclusively on the gig economy, touches on matters such as workplace rights, regulation and the role of secondary legislation that will inevitably affect it. We should therefore consider whether the legislation provides sufficient clarity for businesses operating flexible models, whether it supports fair and predictable frameworks for all parties, and how future regulations will ensure that any changes to employment classifications or entitlements are based on clear, evidence-led analysis.
The question before us is not so much whether the gig economy is good or bad—it is part of the modern labour market, and it will obviously continue to grow and remain so. The more pressing question is whether the labour market is equipped to keep up with that evolution, and whether the Bill provides the right foundation for doing so. In that context, thoughtful and measured discussion about emerging work patterns such as dependent contracting, platform work, freelancing —which we discussed the other day—and other hybrid models are not only appropriate but very necessary. I look forward to further discussions with the noble Lord, Lord Clement-Jones, and others, on this subject.
Before I sit down, I thank the noble Lord, Lord Leong, for the great courtesy with which he has always conducted himself in his discussions and deliberations with our side. I enjoyed his valedictory remarks. I felt that he was perhaps slightly irked by the fact that we have had some relatively lengthy debates—perhaps because he did not agree with the premises of some of them. I would say very gently that that is the point of Committee; we are not supposed to agree, we are supposed to probe. As a former Home Office Minister, I have to say that these debates are not long; they are brief. These debates are like Usain Bolt; ours were like Mo Farah.
The Parliamentary Under-Secretary of State, Department for Business and Trade and Department for Science, Information and Technology (Baroness Jones of Whitchurch) (Lab)
My Lords, I thank the noble Lord, Lord Clement-Jones, for tabling Amendment 318. He raises an important issue. As we have been discussing, the changing nature of work and the gig economy are a real challenge for us, and we recognise the complexity and shortcomings of the UK’s current employment status framework.
I can reassure the noble Lord that the Government have committed to consulting on a simpler framework for employment status, and this remains our intention. We have been clear that, as a result of the complexity, some of the reforms in the plan to make work pay will take longer to undertake and implement. We want to get the potential changes to the framework right, and we will consult on the fundamental aspects of employment law before taking action. I think that in part echoes the comments of the noble Lord, Lord Sharpe, who recognised the complexity and the need to think it through before we get it right. We are determined to follow this through and take action.
I am sympathetic towards the noble Lord’s aims to extend the protection of employment law. The self-employed make a huge contribution to the UK economy. As the noble Lord, Lord Sharpe, said, while many enjoy being their own boss and the flexibility that self-employment brings, others can find themselves highly dependent on one particular client with little choice, which can bring them challenges and problems.
I appreciate that the noble Lord is seeking to address this with his amendment by introducing a new employment status of “dependent contractor” and extending employment protections to those individuals. However, the amendment would further complicate what is already a highly complex area—one where, as I am sure the noble Lord knows, there have been several high-profile Supreme Court judgments in recent years. We want to avoid introducing an additional employment status before we have had the opportunity to reflect and consult further.
In addition, I can assure the noble Lord that the Government are committed to supporting and championing the self-employed. We have already announced a package of measures to help the self-employed thrive in good-quality self-employment, including measures to tackle late payments to small businesses and the self-employed. I urge the noble Lord to listen to our reflections and our determination to look at the whole issues around the gig economy, and to give us a little bit of space to do that. For this reason, I ask him to withdraw Amendment 318.
Lord Sharpe of Epsom (Con)
My Lords, I thank the noble Baroness, Lady Bennett, for bringing forward this amendment requiring a review of safe homeward transport for workers. I also welcome her back from her brief visit to the Maoist utopia on her last amendment. The safety and well-being of workers, particularly those finishing their shifts late in the evening, is a matter of significant importance. Many sectors operate outside traditional working hours, and the challenges faced by employees in securing safe and affordable transportation home after 11 pm are real and varied.
Understanding these issues is crucial, especially for vulnerable groups, including women and girls, for whom late-night travel can present heightened risks. It is also important to recognise that safe transport arrangements can contribute positively to worker morale and retention and may even play a role in reducing crime or accidents. The review has the potential to shed valuable light on current practices and challenges and provide a basis for informed discussion about how best to support workers who face late-night journeys home. I look forward to the Minister’s response.
Lord Katz (Lab)
My Lords, I thank the noble Baroness, Lady Bennett of Manor Castle, for tabling Amendment 321. We recognise the concern underpinning the amendment and agree that workers finishing late at night should be able to travel home safely and affordably. We are aware that for some workers, particularly those in hospitality, healthcare and security, late shifts can pose challenges when public transport options are limited. We also acknowledge and welcome that some employers, including firms in the City of London, have taken proactive steps to support their staff with safe transport home.
While we do not believe that it is appropriate to legislate for a review at this time, I hope I can reassure your Lordships’ House that we are committed to supporting workers’ well-being and safety. That commitment is evident throughout the Bill. For example, as we discussed on the second day of Committee in early May—another opportunity for a history lesson, it seems so long ago—the Bill strengthens the right to request flexible working from day one of employment. This flexible working provision empowers workers and employers to agree working patterns that better suit individual circumstances, including, where appropriate and reasonable, avoiding late finishes. We are also taking steps to improve enforcement of existing rights and to ensure that employers meet their obligations to provide safe working conditions.
Although it is not the subject of this legislation, the Government are also committed to reviving, rejuvenating and investing in public transport, not least through the Bus Services (No. 2) Bill, the creation of GBR, improvements to rail services and the huge amounts being invested across the country, particularly in the north, in new transport projects, all of which will provide a greater level of options and service for not just people working late but those who want to enjoy the night-time economy and to use public transport more generally.
While we cannot support this amendment, we share the underlying concern and will continue to work to ensure that all workers are protected and supported. I therefore ask the noble Baroness, Lady Bennett, to withdraw her Amendment 321.