Pensions Bill

Debate between Lord Whitty and Baroness Drake

Wednesday 8th January 2014 Grand Committee

[Lord Whitty]

My Lords, I have amendments in this group that broadly support the line that my noble friend has been taking. She was right to try to prise open what the Government’s strategy actually is.

Everyone recognises that there are consequences of contracting out, but under this clause and schedule the Government are effectively giving carte blanche to employers to change established means of paying occupational pensions among private sector employees. Government Amendments 48 and 49 actually make that worse by making it pretty explicit that the full cost of that will, or at least can, fall on the employees so that not only are the employers given the right not only to avoid the consequences of that cost and place it on to the employees, which is likely to have the knock-on effect of people opting out of the schemes, but they are overriding the long-established system whereby such schemes are governed by trustees representing the employers, the contributing members and often the pensioners in those schemes. To override the whole system of pension trustees that we have had in place for the past 40 or so years with regard to private occupational pensions is a very serious step. There are particular consequences in the area where statutory protections are built in. Past Governments have given guarantees that can be overridden by this clause.

All this can lead us only to the conclusion that the Government have a strategy and are using the excuse of the other provisions of the Bill on state pensions to go further in destroying private occupational schemes. We discussed the knock-on effect in public sector schemes at our previous sitting but here we have, as my noble friend says, more than 1.5 million people still in defined benefit schemes who have benefited from them and have every expectation of continuing to benefit from them. On top of everything else, the Government are attempting to ensure that those schemes now fail.

There are other reasons why some schemes have been curtailed and there are other reasons why the future of such schemes, in some cases, looks fragile. However, this is a deliberate attempt by the Government to make matters significantly worse. The Government must think very seriously about that. This is why my amendments and those of my noble friend would delete the bulk of Clause 24 and Schedule 14. We recognise that we have to face up to the consequence of that, but it would force the Government to rethink this and do it in the context of an overall strategy towards occupational pensions, their governance and their future, which is not there at the moment.

This clause provides the possibility of the Government reassuring us that they have a strategy but, frankly, we need to see the outlines of that strategy before we finish the proceedings on this Bill. Otherwise, I think that the message to those outside will be that, if you are in an occupational pension scheme in the private sector, we will make it cost you more and the benefits will be less and, if you are in the public sector, the Government will not compensate for the costs that they are imposing on well funded public sector schemes, as we discussed last time.

There is an occupational pension dimension to the whole pension issue. In principle we support many of the changes that the Government intend to make to the state pension, but the other part of the equation also needs to be faced up to. Frankly, I have seen no sign of a government strategy to do that. These clauses and much of this schedule will only make matters very significantly worse.

[Baroness Drake]

My Lords, I shall speak to Amendments 38ZA, 39, 45, 46, 47 and 50. The amendments in this group pose three propositions: the first is not to give the power to employers; the second is to give it only to employers with trustee consent; and then there is the amendment that I propose, which would give the power to employers only if it was subject to an explicit requirement to consult with the trustees.

Quite clearly, abolishing contracting out means abolishing DB schemes. The national insurance rebates to both employees and employers currently run at 1.4% and 3.4% on a band of earnings, so they are not insignificant amounts of money. The Bill will give this statutory override to the employers effectively to recoup that loss of their NI rebate by a choice of one of two options: increasing the employees’ contributions or reducing the value of the future benefits to be accrued. Not all employers need this statutory override to make that adjustment. It is quite clear that the closures and benefit changes of the past 10 years are evidence enough of that. However, there will be some schemes where employers cannot do that without trustee consent. The Government are clearly seeking to provide an override where that trustee consent is required so that employers can proceed without it.

If one looks at the impact assessment, it is quite clear that there is now a green light as a consequence of this clause for employers to recoup the loss of their NI rebates through an increase in employees’ contributions. The assumption made in the impact assessment is that all employees active in DB schemes, who are impacted by this, will bear the cost of increased employer’s national insurance contributions.

Employment Tribunals Act 1996 (Tribunal Composition) Order 2012

Debate between Lord Whitty and Baroness Drake

Monday 19th March 2012 Grand Committee

[Baroness Drake]

My Lords, the Register of Lords’ Interests will show my 25 years’ membership of either the employment tribunal or the Employment Appeal Tribunal, so I declare that interest. I particularly want to speak to the issue of employment tribunal judges sitting alone on unfair dismissal cases because this measure has nothing to do with debates about job creation. The arguments on job creation are around the qualifying period for when entitlement to protection against unfair dismissal kicks in.

The impact assessment shows that lay members were paid a total of £9.78 million in 2009-10, so the measure that we are discussing is hardly a huge cost-saving exercise, and nor can it be a driver of the employment practices of small to medium-sized enterprises. I worry about the implications of moving towards an industrial jury system whereby employment tribunal judges increasingly sit alone in the heavyweight area of unfair dismissal. The impact assessment states that employment judges are competent to deal with the more “fact heavy” unfair dismissal cases. I fully recognise the competence of employment tribunal judges—their competence is not the issue, and I do not think that it is up for debate.

The noble Lord, Lord Jones of Birmingham, said that an employment judge could sit alone at a hearing because judges do so in murder trials. However, these are not criminal law cases, and the standards of evidence are not those of criminal law cases. That is the point. Employment tribunals are industrial tribunals based on the concept of a reasonable balance of probabilities and on all sorts of other concepts that have grown out of a judicial system that is focused on industry, not crime. The concept of industrial juries should not lose that importance. If one looks at the Employment Appeal Tribunal, the view is taken that employment tribunals have heard the facts and seen the relevant people, and that the decision taken is that of an industrial jury. Those decisions are not overturned lightly. There should be a compelling reason for interfering with an industrial jury decision. However, if it increasingly becomes the practice for judges to sit alone, the decisions will not be those of an industrial jury. The concept of an industrial jury, with practitioners from industry hearing industrial cases on a certain premise, will start to bring its own problems which may not be beneficial to employers.

The concept of an industrial jury is very important for another reason—fairness. Many claimants see a panel of three people when they appear before the employment tribunal—somebody from the employer’s side, somebody from the employee side and the judge. If the tribunal finds against the claimant, the impact of that decision is very powerful because everybody on that tribunal has found against him or her: but if the tribunal judge is sitting alone, the claimant is less likely to feel satisfied with the decision. I suggest that the claimant is more likely to want to argue with the judge and to pursue an appeal. The claimant will not receive the same powerful message as when an industrial jury makes its finding.

I turn to the concept of swift justice—what employers and particularly SMEs want. I will put the alternative proposition, which is that if you interfere with the integrity of the industrial jury concept in unfair dismissals, the number of appeals that will flow from that might well increase. The impact assessment states—on the basis of anecdotal rather than hard evidence—that when it comes to appeals made against the findings of a judge sitting alone as against those of a full panel,

“there is no significant difference between lodgement or success rates”.

However, we are moving to unfair dismissal cases with judges sitting alone, not the narrower issues that are weighted heavily towards payment disputes where judges currently sit alone. We are moving to the heart of activity in industry—disputes over whether a dismissal was fair or not—and taking away the industrial jury concept. There may well be a significant increase in the number of appeals. I must say, as a former trade union official, that if an industrial jury goes against you, you pause. I suspect that if an employment tribunal chairman sitting alone makes a decision, the disposition to go to appeal will be much greater. That is because you would be much more confident about disputing the findings of fact by an employment tribunal chairman sitting alone.

Unfair dismissal is a much more contested and emotional territory. The sense of getting a fair hearing in court is very important in terms of influencing the behaviour of claimants. The Government are unquestionably going to reduce employment rights through increasing the period before there is protection against dismissal to two years, and probably through more changes to employment rights that will come in the area of redundancy compensation. They are also looking to promote further the flexible labour market. It strikes me as unwise and counter-productive to seriously tamper at this point with the industrial jury concept. At the same time as people are getting anxious about the quality and availability of employment rights, the Government are taking away from the key area of unfair dismissal the guaranteed right of access to a tripartite industrial jury. That is a big risk for the sake of saving £9.78 million. I would not take it.

It says in the impact assessment—although I cannot find exactly where—that if claimants are not happy about a judge sitting alone hearing their case, they can put their reasoning to the judge as to why there should be a full panel. Some claimants who come before a tribunal are barely capable of prosecuting their own case, particularly if they are lowly paid or if English is not their first language. The idea that they can mobilise a set of arguments in support of why they should have a full panel as opposed to a judge is laughable. Equally, claimants who are unrepresented and put their own case, even if they are not in low-paid jobs and English is their first language, will be anxious and will not feel confident about legal procedures. They probably will have no idea of how to mobilise a set of criteria on whether their case should be heard by a judge alone or a jury sitting as a panel of three.

On the argument that there will still be judicial discretion as to whether a tribunal judge should sit alone or with lay members, the tribunal judges will be under their own pressures. They will be under pressure to keep costs down and to get the throughput of cases. I suspect that a tribunal judge who allows too many full-panel sittings will be called by the regional chairman and asked why his productivity statistics are lower than other people’s.

I worry seriously that at the same time as employment rights are being reduced—we may well see them further reduced—the concept of the industrial jury is under attack. One cannot have a concept of an industrial jury unless two lay members representing the two participating sides of industry are also representatives on those tribunals. Anybody with experience of dealing with unfair dismissal cases knows how, in the majority of cases, they can be very fact heavy, very contested, very emotional and very influenced by what is reasonable or normal practice in that industrial context. An intellectually brilliant employment tribunal judge may not have an understanding of what is ongoing or normal industrial practice in a particular industry.

[Lord Whitty]

My Lords, I have left most of the detailed points to my front row. But the essential point that the Government need to address, which they have not done convincingly, is the point of evidence—evidence not anecdote. The noble Lord, Lord Jones of Birmingham, is undoubtedly right that when two or three businessmen are gathered together, the evening rarely ends without some complaint about employment legislation. But does that seriously change their behaviour? There ought to be that evidence because, as the Minister said at the beginning, we have changed the qualification period several times, both in general and in relation to the size of firm it applies to, from 1971 to 2012. We are therefore talking about 40 years of potential evidence that the qualification period made a significant difference to the way in which employers approached staff recruitment.

My colleagues have referred to huge problems concerning fairness, justice and the behaviour of management towards employees. There are also issues in terms of the behaviour of individuals towards employers. But the central economic point which would justify such a change in the regulation is whether that leads to fewer people being employed. In general parlance, it would seem a very strange move by the Government to suggest that we increase employment by making it easier to sack people.

However, there is no evidence to the contrary. No change is identifiable. We have a whole impact assessment of God knows how many pages here, which not only says that we are unable to establish whether the number of cases changes as a result of a change in the qualifying period, but there is not one word about whether recruitment or a decrease in employment follows a change in the qualification period. Unless it does, the central broad argument that the noble Lords, Lord Jones and Lord Cope, the Minister and others have put to us—that this will have a significant effect on the propensity of employers to take on new labour to help solve the youth unemployment problem—must fall. At best, it is unproven. There is a lot of anecdotal evidence, but no statistical evidence.

A lot of other issues affect employers’ behaviour. But, over that 40 years, with very clear break points in the qualification period, one would have hoped that the statisticians available to the department would have been able to exclude or at least minimise the effect of those other considerations and have been able to identify that a clear change took place in the propensity, particularly of small businesses, to take on more employees once the qualification period had changed.