Small Business, Enterprise and Employment Bill

Baroness Hollis of Heigham Excerpts

Monday 26th January 2015 Grand Committee

[Lord Young of Norwood Green]

My Lords, again, this amendment seeks to extend the Secretary of State’s powers and to make it more explicit in the legislation. That is justifiable in the circumstances and we have identified the relevant provisions. There is some flexibility in it, so zero-hours workers have a right to be awarded financial compensation, of amounts to be determined by the Secretary of State. Employment tribunals are given powers to enforce their judgments, which is relevant and reasonable in the circumstances. Returning to an issue to which I referred in an earlier contribution, it imposes an obligation on an employer to offer a fixed-hours contract when a worker has worked regular hours for a continuous period or a series of continuous periods of employment, to be determined by the Secretary of State. We are not seeking to do away with flexibility; we recognise that that is appropriate in some circumstances. However, we believe that at the moment zero-hours contracts are, in many circumstances, a bridge too far and that they deny workers basic employment rights.

Amendment 68ZAC is intended to ensure that workers are fully enabled and empowered by understanding the nature of the zero-hours contract, so the employer has to provide basic information about terms and conditions for all zero-hours workers within two months of their start date. Again, we think that is a reasonable requirement. We regard a contract of employment as an inalienable right of workers and we seek to extend that right to those on zero-hours contracts. I beg to move.

[Baroness Hollis of Heigham (Lab)]

My Lords, I support the amendments in this group. The daughter of a friend works for a burger company and is on a ZHC. She does not know until the previous Friday what hours she will get for Monday. She cannot plan her life; she cannot budget; she cannot buy any large goods; she cannot study. She cannot do another job alongside it—I am delighted that the Government are moving to stop that ban continuing—and, if she were not living it home, she could not rent, as landlords want evidence of steady income. The Unite union, which has done splendid work on this, was told by a call-centre worker, who had worked for a multinational firm for five years: “I am only informed if I have shifts one week in advance and the hours I am given can range from nought to 48. I feel regularly anxious about whether I will be able to pay the rent and put food on the table.” She too is on a ZHC. A third person on a ZHC, a lone parent, expects, and is expected, to work on Fridays and had arranged and paid for childcare, as she must. Her shift was cancelled an hour before and she was told to work on Saturday instead. She had to pay for the childcare she did not need on Friday but could not find childcare for the Saturday when she needed it, so she refused. Her hours were cut the following week as punishment.

As my noble friend Lord Young said, we estimate that nearly 2 million people are on ZHCs in cleaning and domiciliary care, retail, hospitality, catering, call centres, construction and customer services, with wages at or around the minimum wage. Some 75% of those on ZHCs find that their hours vary every week and 40% are not allowed to work for anyone else, although we welcome the fact that this Bill begins to address that problem. They are on call—unpaid—and required at an hour’s notice. They are hoarded but not used, a sort of just-in-time stock control applied not only to tinned tomatoes but to staff. Of course, after six months they should be given a proper fixed-hour contract. We may be in a 24/7 economy, which needs a flexible labour market, but, as Pickavance argued in his report, fluctuating demand—the excuse for flexible labour and ZHCs—is largely predictable.

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[Baroness Neville-Rolfe]

My Lords, I am grateful to noble Lords for their amendments and the opportunity further to debate aspects of zero-hours contracts. I am also grateful for the clarification by the noble Lord, Lord Young, that he does not want to get rid of all flexibility. I was also very glad that the noble Baroness, Lady Hollis, joined our discussion. Her three case studies demonstrate the need for Clause 148.

As I set out in our previous debate, the Government recently consulted on the matter of avoidance and routes of redress, including powers to go to employment tribunals and seek compensation. I am pleased to reassure the Committee that that is already possible under Section 27B in Clause 148.

Amendment 68ZX would require employers to offer fixed-hours contracts once an individual has worked regular hours as determined by regulations. The noble Baroness, Lady Hollis, mentioned six months. Before I respond, let us reflect on how those with zero-hours contracts feel about their employment. The CIPD survey published in November 2013 found that many individuals chose to work on a zero-hours contract and were found to be more content than those in permanent employment. I accept that there will be hard cases but these are overall comments. Zero-hours workers, when compared to the average UK employee, are just as satisfied with their job, happier with their work-life balance and less likely to think that they are treated unfairly.

To respond to the point made by the noble Baroness, Lady Hollis, fluctuating demand is not predictable. My noble friend Lady Harding told us about that at Second Reading from her experience. Even the noble Baroness acknowledged that there are sectors of the workforce and individuals—students, those in IT, the recently retired, and many others—who are happy with zero-hours contracts, and, of course, happier to have a job than not to have a job. Imposing restrictive criteria over how a zero-hours worker can be employed may have the perverse effect of discouraging employers from creating jobs at all.

I appreciate that that is not the noble Lords’ intention, but I know that the Committee will understand the risk of unintended consequences, because it is something that we consider a lot when we are trying to legislate in this House. There is a clear risk that employers will simply let people go, or offer no work at the end of a qualifying period to avoid converting the contract to fixed hours. It would also be very difficult to define what is meant by “regular hours” in all those different industries.

The Government have already made some changes in this area. The flexible working regulations were amended in June 2014 to ensure that any employee can request flexible working. That is just as relevant to someone on a zero-hours contract as it is to a permanent member of staff. If a zero-hours worker is an employee and can show 26 weeks’ continuous service, they can make a request for formalised hours or a particular shift pattern.

Amendment 68ZX also requires a right for zero-hours workers to be provided with financial compensation. As I understand it, that power is already provided for in the clause.

[Baroness Hollis of Heigham]

The Minister says that people are satisfied with that. I was just checking my statistics from the CIPD, in which only one in five older people prefer the contract that is being offered them; the other four-fifths would like regular hours. The problem is that you cannot run a second job alongside a first—which is the point of Clause 148, which we all welcome—unless you know what your hours in the first job will be. It is very simple. Unless you have the ability to turn it into a reliable, regular, predictable contract, with the exceptions that we all agree may well be necessary—in IT, arts events, so on and so forth—the freedom you are giving in Clause 148 will be partly illusory. You cannot do it.

[Baroness Neville-Rolfe]

I thank the noble Baroness for her clarification. This is not an easy area. I also note that she made a number of good points about bad employer practices. I will mention something we are doing that may help on all these points. We have already encouraged business groups and unions to develop codes of practice. Those need to be sector-specific and industry-led, as we think that creates the most impact. A one-size-fits-all solution from the centre will not work, for exactly the reasons that we are debating this afternoon. The guidance would include, for example, in what circumstances a zero-hours contract is appropriate and where it is not, and the kind of considerations mentioned by the noble Baroness will be relevant.

Amendment 68ZX also seeks powers for employment tribunals to enforce their own judgments. Well established court-based enforcement options are already available to enforce employment tribunal awards, such as the fast-track system or county court in England and Wales and the sheriff courts in Scotland. The primary function of the employment tribunal is of course to provide a forum in which parties can resolve their disputes and obtain a judgment. The employment tribunal does not have responsibility for the enforcement of the awards it makes to individuals. Tribunal-led enforcement of its own awards would represent a fundamental departure from the normal principles of civil justice and enforcement. If the enforcement of employment tribunal awards for zero-hours claims became a tribunal-led affair, many other employment tribunal and civil court users would begin to question why the tribunal or court did not pursue or enforce its judgments or awards.

Amendment 68ZAC suggests that zero-hours workers should be provided with information about their basic terms and conditions within two months of their start date. I agree that employers should provide their staff with clear terms and conditions, and I reassure noble Lords that employees are already entitled to a written—or, I think and hope, online—statement of the particulars of their employment arrangement. That entitlement applies to individuals on a zero-hours contract if their employment status is that of an “employee”. However, the Government acknowledge that there is a wider issue about whether all workers, regardless of their employment status, should be entitled to a written statement. That is being considered as part of the review of employment status, including the risks, impact and opportunities involved in any new arrangements, which I mentioned when we were discussing interns. Officials will report to Ministers on the outcomes in March.

The noble Baroness, Lady Hollis, also talked about the interlink between zero-hours contracts and jobseeker’s allowance or universal credit. Universal credit was of course designed to be responsive to fluctuations in earnings—it is different in that way, and to my mind better—so, for people who are working, financial support will be reduced at a consistent and predictable rate. In weeks where a claimant has lower or no income from their zero-hours contract, universal credit payments would increase.

[Baroness Hollis of Heigham]

The point is that if you are going to be paid only at the end of the month, what do you live on in the mean time? Just to make it clear, your universal credit payment will be paid in arrears at the end of the month. However, you learn only at the end of the second week that you do not have the income. Although I absolutely agree that UC will reflect the total earnings over the total month, what do you live on in weeks two and three?

[Baroness Neville-Rolfe]

The noble Baroness makes a point that bears on the universal credit payment system in the round. I think that the clause is actually helpful, compared to the status quo, if we make these changes on zero hours. I am advised that universal credit is paid in real time, so if the claimant informs the system in real time, they will get the money. I must apologise that I am not a welfare expert, I am a Business Minister.

[Baroness Hollis of Heigham]

Whether it is the handwriting or whatever, it is certainly the case that UC will be based on real-time information, but the payment will be made at the end of a month in arrears. Therefore you have the problem of income-smoothing when you have unpredictable hours, and we know that the hours of 75% of people on ZHCs vary every week. That is why, going back to Clause 148, I ask how you can run a second job with unpredictable hours if your first job has unpredictable hours. Your two employers may want you at the same time, but neither employer may want you at another hour.

[Baroness Neville-Rolfe]

The noble Baroness makes a good point. In a sense, that is a problem for employers, who could previously have a zero-hours arrangement that was exclusive. As I explained in opening, we have decided that that should not be the case in future. I am sure that the new arrangements will take some thinking about and settling in but, as far as I am concerned, if you are on a zero-hours contract, you can offer your services to—I do not know—two fashion magazines rather than just one. That is an excellent move forward. In any event, many people on zero-hours contracts who benefit so much from them, especially those in the categories that we were talking about, are not looking for universal credit, as the noble Baroness acknowledged.

I have probably taken this as far as I can this evening. I have tried to set out why we are proposing this, and I hope that the noble Lord will feel able to withdraw his amendment.

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Moved by

[Baroness Hollis of Heigham]

68ZY: Clause 148, page 138, line 7, at end insert—
“( ) Such workers shall be eligible for inclusion within the national insurance system where the relevant worker’s annual earnings exceed £3,000 per year.”

[Baroness Hollis of Heigham]

My Lords, this is a probing amendment to analyse the relationship between the flexible labour market and the benefit system that is supposed to support it and which often fails to do so. Some 6 million people in this country have part-time or flexi-hour jobs, and well over 1 million—probably nearer 2 million—are on ZHCs. Most are on or around minimum wage. Unite estimates that half of all workers under 30—that is 3.75 million—are on ZHCs and other short-hour contracts.

As I have said in relation to a previous amendment, of those who are on a ZHC, 75% find that their hours vary every week; only one in five have the same hours and thus the same pay each week. Many do not know on Friday what hours and what pay they will get on Monday.

We have already discussed the abuses that workers may face: unpredictable hours, low pay—nearly 60% of those on ZHCs earn less than £500 per month, with no proper contract, no reliable income, shifts cancelled at an hour’s notice and no ability, which the Bill addresses, to work another job alongside it. There is one other downside that has been largely overlooked and which applies not only to ZHCs but to any part-time job: the interaction more fully with the benefits system. The CIPD, whose figures I have with me, found that 37% of people on ZHCs—that is, 400,000 people—as well as hundreds of thousands of others in short-hour jobs work fewer than 16 hours a week, most at or around minimum wage, in any one job. Tesco was recently recruiting some 800 staff. Ninety-six per cent of the vacancies were for part-time positions, deliberately designed to save the company paying employer national insurance and thus saving Tesco some £100 million a year, even though that left many of its employees without national insurance rights.

Snapshots of Jobcentre Plus show that the majority of jobs usually advertised are part-time, which can mean that those filling them do not come within the national insurance system. As I am sure the Committee knows, for you to come within the NI system you have to earn at least £5,700 in any one job, although you and the employer do not pay NI rates until you are earning at the primary tax threshold of £7,500. Cruelly, and completely irrationally, if under the new freedoms you run three £5,000-a-year jobs alongside each other—for example, cleaning, work in the lunchtime sandwich shop, local newsagent or launderette, or bar work—although your £15,000 income from your three £5,000 jobs is amalgamated for tax purposes it is not amalgamated for national insurance purposes and you are outside the system. I estimate that some 200,000 people are caught this way. We can argue the statistics but I have had the privilege of being a member of a working party on this subject, chaired by the IFS and set up by the Minister’s right honourable friend in the other place, Steve Webb.

The Bill rightly allows people to run two ZHC jobs alongside each other but that will substantially increase the number of people caught. Although their amalgamated income would take them over the NI threshold, because they have to earn more than £5,700 in any one job, they are still penalised. Such jobs are not temporary contracts for entry-level jobs. As my noble friend Lord Young said earlier, half of those doing them stay for more than two years and one-quarter stay for more than five years in such ZHCs.

Who are they? People can be credited into the national insurance system if they are unemployed and on JSA or ESA, if they have children under 12, if they are caring for older people for more than 20 hours a week or if their household income is so low that they will qualify for universal credit.

Who then is excluded from coming within NI? They may be young people living at home. Rather than live off benefit, which would bring them into NI, they are bravely patching together an income that does not. If you are unemployed you get NI, but if you piece a living wage together through two or three jobs then you do not.

They will, in particular, be middle-aged women with children over 12, whose partner’s income floats them off universal credit but who have one, or three, part-time jobs, all below the lower earnings limit, which they have fitted around their family life and caring responsibilities for years. Does it matter? Why am I banging on about this? Without NI, you lose statutory rights to sickness, holiday and maternity pay. Above all, you fail to build your 35 years towards a full state pension. This mattered less until the spring because, in the past, married women could derive a state pension from their husbands—the 60% dependency pension. In future they will not be able to get a pension through him, or through their own work, even if they are working 30 hours a week in three ten-hour jobs. They will go into retirement with much lower pensions. If you lose seven years of NI contributions, and many women in their 40s and 50s may be working without NI contributions for seven years or so, your state pension on retirement drops, on current figures, by £30 a week for the rest of your life.

I have tried, and I am still hopeful that another Government may be able, to amalgamate a couple of mini-jobs for NI purposes, just as they do for tax, to bring a worker into NI. I recognise that in the past the difficulties in doing this were with divvying up the employer’s contribution among two or three mini-job employers and collecting the appropriate information about hours of work. I acknowledge that those two roadblocks were real but we are allowing the self-employed to acquire the full new state pension without an employer’s contribution, so that problem has disappeared and, as the Minister has said, we are collecting real-time information for UC so we can track it all. We could therefore treat people with ZHCs as though they are self-employed or, if they are working less than 16 hours in any of their jobs but at least that in total, they could be regarded as meeting JSA work conditionality and be credited in. We could let older workers, especially women, revisit their national insurance record at the point of retirement to make good any shortfalls, whenever they had occurred, and not confine their ability to do that to the last six years of working life when family pressures—and, therefore, their exposure to a bundle of mini-jobs that did not bring them into NI—may well have occurred much earlier than this.

The coalition Government have, wrongly, refused all such possibilities. With this amendment, I am trying another path to again get people on ZHCs into the national insurance system. Revisit the lower earnings limit, the point at which you come into national insurance. It is currently £5,700 but you do not pay it until £7,500. You could abolish the LEL altogether. After all, if you are on JSA, ESA or UC you come into the national insurance system as of right, without paying a penny and, at that point, without working. It is therefore arguable that there is no point in the LEL any more. However, if that is too radical, I make a more modest suggestion that anyone earning £3,000 a year in any one job—that is £60 a week, or around 10 hours per week at minimum wage—should be credited into NI. A few weeks back, I tabled a Written Question asking what the net cost of this would be, given that so many people are credited into NI without any wage from work. I did not expect it to be high. The noble Lord, Lord Deighton, helpfully replied that the information was not available, which I find hard to believe. I am glad to see the noble Lord, Lord Newby, here; perhaps by now the Minister has had the datasets sorted. That is the reason for this probing amendment.

More positively, we know that the best predictor of anyone in a full-time job is that they held a mini-job the year before, and that a zero-hours contract job of around 10 hours may be a stepping stone back into the labour market for older women. It may, over time, add to our tax and NI receipts.

However, the real case for the amendment is a moral one. We are—some of us—happy to have a flexible labour market in which all the risk passes to the worker, who is then exposed to an exploitative labour market and a rigid and inflexible social security system. Even with this Bill, and even being able to work a couple of ZHCs together—which will be difficult, given that you cannot predict the hours in either of them—you still have to get above the LEL in any one of them to come within NI, so the risks of losing years of your state pension accrual remain.

The flexible labour market will send hundreds of people into retirement with an incomplete state pension, simply because issues such as these are off the Government’s radar. I beg to move.

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The amendment specifically seeks to change the position for zero-hours workers who have annual earnings above £3,000. The issue of low earners not gaining entitlement to contributory benefits is, however, not one exclusive to those on zero-hours contracts, and as such it is right to consider it as part of the wider work already under way. The amendment would mean that a person on a zero-hours contract who earned £60 per week would gain access to contributory benefits. However, someone who worked a limited number of guaranteed hours each week—that is, not on a zero-hours contract—earning £110 per week, would not. I am sure that the noble Baroness, Lady Hollis, would agree that that would at best be a partial solution.

[Baroness Hollis of Heigham]

I am sorry—I did not understand that sentence at all. Would the noble Lord care to explain to me why somebody on £60 a week would be in the contributory system, while somebody on £110 would not?

[Lord Newby]

I am drawing the distinction between somebody who is on a zero-hours contract at that level of income and somebody on a higher level of income, on a straightforward contract, which might pay £5,000 a year. The noble Baroness’s amendment deals solely with people on zero-hours contracts—that is what the clauses deal with.

[Baroness Hollis of Heigham]

No—that is not a correct statement. I made it very clear in my opening remarks that this is a problem. My amendment says:

“Such workers shall be eligible for inclusion within the national insurance system”,

and that does not exclude others. I would obviously expect, as the noble Lord absolutely rightly recognises, that that would apply to people on ZHCs. However, as I made very clear in my opening remarks, this affects all those on short-hour or part-time contracts, where in any one job they are not over £5,700, but could by aggregation or in this way, by lowering the LEL, come within the NI system. If we believe in encouraging people into work, we should do this.

[Lord Newby]

My Lords, I was not suggesting that the amendment would exclude the possibility of further provisions being made for people who are not on zero-hours contracts. However, the amendment would amend a clause that deals specifically with zero-hours contracts—that is what the Bill deals with. It is not dealing with people who are on straightforward contracts for, say, five hours a week. That is the point I am making, that this is partial. I am not saying that that means it is worthless; I am simply saying that it is a partial solution, even if the Government were to accept it.

I reiterate what both noble Baronesses have said, that individuals with earnings below the lower earnings limit, whether on zero-hours contracts or not, are not without some protections already. At the highest level, individuals have to reach the lower earnings limit in only 30 years of a 49-year working life to qualify for a full state pension. Those who reach state pension age from 6 April 2016 will require an additional five years. That means that the individual can fall below this limit for a significant number of years—up to 14—and not be penalised in retirement.

Of course, there are also the other protections, which both noble Baronesses have referred to. Not only income that is above the lower earnings limit counts towards eligibility for a full state pension. Many national insurance credits also count towards that entitlement. For instance, NI contributions can be credited where a person is unable to work full-time due to ill health or because of caring responsibilities. These can be awarded to those receiving certain benefits, such as child benefit or working tax credits, to help build entitlement to a state pension. While we cannot be certain, it is highly likely that many individuals whom the noble Baroness is seeking to benefit are getting national insurance credits during those years in their working life where their earnings fall below the lower earnings limit.

I know that the noble Baroness is keen to make changes as soon as possible, but more work is clearly needed to understand the full extent of the issue. In any event, as I have said, this amendment, which deals only with zero-hours contracts, does not and would not resolve the issue entirely in the way that the noble Baroness wishes. I therefore urge the noble Baroness to continue working closely with the DWP and HMRC on this matter so that they can have the benefit of her very considerable experience and we will eventually reach a satisfactory solution. However, I submit that the way we should do that is not through this Bill and this amendment.

[Baroness Hollis of Heigham]

I thank my noble friend Lord Young, and especially my noble friend Lady Drake for her powerful speech.

The noble Lord, Lord Newby, made three points in reply to which I need to respond. The first was that work was in hand on the working party chaired by the IFS—which, as I said, his right honourable friend Steve Webb set up—on how best the problem should be addressed. Not so. We were told explicitly that all that we could do was collect the data on how many people might be affected, not come up with any policy recommendations. I noticed that when I suggested half a dozen, they were not included in the minutes.

I would be delighted to have the wider remit that the Minister suggested, because that would indeed allow us to take the issue forward. Instead, it has hung around his second point, which is the number coming from DWP of 50,000 as opposed to my figure of 200,000. I am not sure about the propriety of my citing this information in the Moses Room, but if he checks the minutes and the additional information based on research of P14s from HMRC and his department, he will probably find that it is estimated that 130,000 people will be above the current LEL in any one pay period, which could be a week or a month, but over the course of the year will be below LEL, so they are in addition to the 50,000. In addition to that, it was suggested to the working party that about 30,000 or more, possibly far more, are untouched or uncaught because they work for very small employers—the newsagent’s shop, and so on—and are not within the PAYE system. Put those figures together and you get to more than 200,000, my original figure of some two months ago.

The Minister’s third point was that the amendment was very partial and that there was a wider problem with part-time workers more generally. I absolutely agree; he is right. I will be delighted if, as a result, I have persuaded him that the Government need to come back on Report with a comprehensive amendment, a freestanding clause which will address the issue more widely. I invite him to do so, because that is what he has been suggesting and would be consistent with his position in his reply.

At the core—okay, we are arguing between ourselves —is that it cannot be right, first, that someone who is not employed comes into the national insurance system but someone who may be working 30 hours a week cannot do so. Secondly, it cannot be right that when we have a flexible labour market—we have all agreed that a flexible labour market in a 24/7 economy is necessary—all the risks, including the risk of losing a sizeable chunk of your state pension, should fall on the shoulders of the worker, usually a middle-aged woman. That cannot be right. I regard it as immoral. If we want a flexible labour market, and most of us accept that there is a need for it in places, we should ensure that the national insurance system supports those people to do what the rest of us want, wearing our hats as consumers. If we do not, I think that we are behaving immorally. I am sure that, on reflection, the Minister would agree.

I am very happy to continue to discuss numbers on the working party. I am very happy that the Minister will recommend to his right honourable friend that we enlarge the terms of reference of that committee and therefore come up with policy recommendations, and I would be very happy if the Minister were minded to produce some of those recommendations on Report as a government amendment. I would then be very content. I beg leave to withdraw the amendment.

Amendment 68ZY withdrawn.