Equality Act 2010 (Equal Pay Audits) Regulations 2014

Baroness King of Bow Excerpts

Monday 28th July 2014 Grand Committee

In conclusion, achieving transparency in pay systems is crucial to ensuring that male and female employees who do the same or equal-value work for the same employer are paid the same rate for the job that they do. These regulations and the message that they send to employers are a significant means of bolstering pay equality in the workplace and providing a further impetus to the steady, long-term reduction in the gender pay gap. I commend these regulations to the Committee.

[Baroness King of Bow (Lab)]

My Lords, today will see a coach and horses arrive in Parliament. That is not so unusual, but on this occasion I am sad to say I fear it will ride through the spirit of the law on equal pay. The Equality Act 2010 was a landmark piece of legislation that simplified, strengthened and extended protection from discrimination.

As we know, one of the most persistent areas of inequality, first addressed over 40 years ago, is the gender pay gap. The Equal Pay Act 1970 sought to remedy the fact that women were systematically paid less than men. However, instead of it narrowing, last year the gap actually widened slightly, by 0.1%. The figure might seem small, but not only are we riding in entirely the wrong direction, but we are witnessing significant hidden regional and sectoral variations. In London, for example, women are now paid 13% less than men, while across the UK women in full-time employment in the private sector are paid a staggering 19.9% less than their male counterparts.

Against this backdrop we need firm leadership from the Government. Given the Government’s pronouncements on equality, I was hoping they would take all the measures necessary to address what I am sure everyone here recognises is blatant discrimination in the workplace against women. After all, this gender discrimination also impacts hugely both on the children who women care for and pensioner poverty once those women retire.

Reading through the regulations we are debating today shows this clearly is not the case. In effect these regulations turn a blind eye to many breaches of equal pay. Let me set out exactly why I feel this is. Equal pay audits are an extremely important mechanism for bringing the gender pay gap to light. Essentially, where companies have broken the law and a tribunal orders an EPA, the lights get switched on and for the first time everyone can clearly see what is going on. Cloaking pay structures in darkness—which is one of the reasons this problem has dragged on for so long—does nothing to solve the problem. It just increases a company’s liability at some future employment tribunal. The best companies carry out voluntary EPAs. Most, however, do not.

The Government have set out circumstances in which an audit must not be ordered and the Minister set some of them out. According to Regulation 3(1)(d), this is where,

“the disadvantages of an audit would outweigh its benefits”.

However, this wording is so broad it gives employers a blank cheque to argue that an EPA would, on balance, in their view, be disadvantageous. There is no guidance, as far as I am aware, on how the disadvantages and benefits are to be assessed. The disadvantages put forward by an employer are likely to be cost-related and, if you look at what has happened to date in employment tribunals, employers are, unfortunately, likely to exaggerate the costs of doing an audit. Quite often we find that employers who have broken the law portray employment legislation as dastardly red tape. Where the costs of doing an audit are significant, it is likely to be because there is a high risk of equal pay breaches. This in turn is due to no transparency in pay, no clear and up-to-date job role profiles, no method for assessing where jobs are of equal value and no clear reasoning or objective systems for determining pay.

In other words, there is no proper management, no transparency and no accountability. Of course, this will make identifying differences in pay for those doing equal work—as well as the reasons behind those differences—particularly difficult to work out. This is the real world, so I would be grateful if the Minister could give us some real-world examples of the circumstances covered by Regulation 3(1)(d) when a company is saying that the disadvantages will outweigh the cost. The Minister gave us one example, I believe—for instance, where a company feels that the cost could push it over the edge and make it bankrupt.

However, I really must interrogate this cost issue a bit further. The Government are exempting micro-businesses and new businesses, because this is a burden, again presumably mainly on the grounds of cost. The TUC argued against any such exemption—of course, we would expect that—but its argument is extremely compelling. It argues that the right to equal pay applies regardless of the size or age of the business. Surely this must be right. Think about it if we were talking about black people. Can you seriously imagine the logic of saying, “It’s not fair to pay black people less than white people for work of the same value, therefore we won’t allow big business to get away with it, but small business can’t be burdened with equal pay legislation, so if they break the law we’ll just leave it at that”? It is absurd and simply does not hold water.

The Equality and Human Rights Commission has even produced guidance on how to do equal pay checks for small businesses. The EHRC estimates that for a business twice the size of a micro-business—that is, one with 20 people and, say, five job roles—an EPA will take half a day to carry out. For a micro-business half that size, we are looking at about two to three hours’ work. If you are talking about a business with three or four employees, it would be even less—you could be talking about one hour’s work. How hard is it to get out five pay cheques and look at them over a year along with the job descriptions? It is frankly not good enough to say that this is a burden on anyone.

--- Later in debate ---

[Baroness King of Bow]

I thank the noble Baroness for raising the subject of statistics. For the sake of clarity, I should say that the figure that I gave of 0.1% was for last year, 2013, and not the last quarter. However, I will go away and verify that, although I got it from two different sources. In general, could the noble Baroness tell us whether she feels that we are moving in the right direction in terms of the gender pay gap?

[Baroness Northover]

The figure that the noble Baroness gave was actually for the last quarter, as she will probably find out when she investigates.

One thing that I find striking and encouraging is that the gender pay gap between men and women under the age of 40 who are working full time has narrowed considerably. The difference in the gender pay gap is for those above that age and those working part time. One reason why there is a major difference in part-time work is the type of work that men and women are in. We know that equal numbers of kids are going through school and that often girls come out better qualified. More are going to university, but they are grouping in different subjects. Some of those subjects lead to better-paid careers, which is something that we, like them, seek to address—I am referring to the STEM subjects.

The most important thing is the caring responsibilities that women often have, which is why you start to see this difference as you go through life. That is why in some ways it is quite encouraging to see that the gender pay gap has narrowed so much for those up to the age of 40, although we need to do much more to make sure that that carries on through.

[Baroness Northover]

I think that the noble Baroness would be reassured by the progress being made in this regard. I will probably need to write to her with the details but, again, I looked at this and I did not see the negative trends that she may be hinting are there. I will write to her and clarify that.

I am glad that the noble Baroness, Lady King, welcomes the audit. Obviously, that follows on after cases have been lost by employers. She is quite right, as is the noble Baroness, Lady Donaghy, to emphasise that it is in the interests of the companies and for the health of the companies to make sure that their employees are paid fairly between the genders. If they are not, there will not be a happy and effective workforce. I think that forward-looking companies recognise that now; indeed, they should recognise that it is in their own interests to make sure that this moves forward. If they lose such cases, they need to take action to put it right.

The kind of pay audits that we are talking about help to shine the spotlight that the noble Baroness mentioned on this. She mentioned the exceptions and seemed to imply that a company could say to the tribunal, “We can’t afford to do this”. I hope that she will be reassured by the fact that the tribunal, not the company, decides whether there are reasons for exemptions. I hope that I illustrated, in listing the four cases where there might be an exemption, how tightly drawn that is. I gave an example in each case of the kind of thing that we are thinking about there. Clearly, if they persist—suppose that they said they were about to go bankrupt and the tribunal thinks that that is the case, but then another case is brought and it turns out they had misled them—they are obviously in a much weaker position.

I reassure the noble Baroness, Lady King, that new businesses only have that exemption for the first year, not for 10 years. She grouped them together, but the committee asked for further elucidation about micro-businesses, which I hope that we have provided.

[Baroness King of Bow]

Before the noble Baroness moves on, as I understand it, micro-businesses and new businesses will be exempt for 10 years.

[Baroness Northover]

No, I will clarify that. As I understand it—I am sure I will be corrected if this is not the case—new businesses are protected for one year only. Micro-businesses are protected, potentially, for 10 years, but providing that they remain micro-businesses. I hope that clarifies the position. I take it the noble Baroness would rather that is not the case, but that is the settlement we have reached on this to try to ensure that micro-businesses do not have disproportionate burdens placed on them. However, they are obviously still subject to the law, and their employees are protected by the law. We are talking here about whether the audit would follow the loss of such a case.

The noble Baroness thought that the penalty of £5,000 should be much higher. The penalty is specified in primary legislation, so we cannot impose a greater penalty in the regulations which follow on from that. It derives from the Equality Act 2010, which she no doubt played a part in, as did the noble Baroness, Lady Thornton. When the Enterprise and Regulatory Reform Act inserted this penalty into that Act, the party opposite did not oppose it.

[Baroness King of Bow]

Would the noble Baroness then agree that we have all got it wrong? Surely it does not make sense for the penalty to be less than the cost of continuing the breach.

[Baroness Northover]

We will all, no doubt, be monitoring this to see what the effect is. One of the things which happens to a greater extent these days is that people put information about the place they work on social media. This is not the kind of thing which any company wishing to attract talent wants to have flagged among potential employees. Nobody will want to head down the route of losing equal pay cases, and they will certainly not want to have an audit thereafter which shows further challenges within the company. I am sure that we will all monitor this to make sure that it is heading in the right direction.

Similarly, not having a pay audit may make micro-businesses that have lost cases more vulnerable to further claims. Again, I am sure that those businesses will not want that to happen.

[Baroness King of Bow]

I thank the noble Baroness for her indulgence on this, but are these regulations not setting up a scenario where the same employer can breach the same law again and again, and never be forced to take any action? There is no sanction, even if they are ordered to take an equal pay audit and choose not to.

[Baroness Northover]

I am suddenly inspired to say that the regulations allow the tribunal to apply a £5,000 penalty repeatedly if the employer remains in breach. Therefore, it could have quite an effect cumulatively. I hope the noble Baroness will be somewhat reassured that there is a possibility of that follow-up if they are not taking action. I think that I have addressed most of her questions.

I now come to the main points raised by the noble Baroness, Lady Donaghy. I agree absolutely with her support of the notion that unequal pay does not help the business or the economy. That has to be a major incentive for companies to ensure that this moves forward. I do not think I have an answer to what happens if a company goes into bankruptcy and then resurfaces; maybe I have and I have buried it somewhere.

[Baroness Northover]

That is extremely kind of the noble Baroness. She asked me quite a bit about narrowing the pay gap. I hope that I have helped to address some of those. This is obviously a lever to help in these cases. It is very important that the law is there, that we ensure it is implemented and that companies are heading in the right direction. However, we all know that there are much wider reasons why this is difficult to shift. We are in line with what is happening in northern European companies—many more women are working than in the eastern European and southern European countries where, curiously enough, there is a narrower pay gap. That is because many women are not working. We share that particular challenge with our northern European neighbours, but we all need to ensure that we take forward the kind of support and legal changes that help to underpin women’s ability to participate in the labour force as equal to men’s. We also need to ensure that we tackle instances where there is genuine discrimination.

[Baroness King of Bow]

May I ask the noble Baroness what I hope is one last question? How many cases do the Government envisage being brought in circumstances where businesses will be asked to carry out an equal pay audit?