Employment Law (Businesses)

Julian Smith Excerpts

Wednesday 3rd November 2010 Commons Chamber

[Julian Smith (Skipton and Ripon) (Con)]

I am delighted to have secured this debate on the effect on businesses of proposed changes in employment law. I am particularly delighted that it will be conducted under your chairmanship, Mr Speaker, as I still have my L-plates on: this is only my second speech to Parliament.

When I was a small business owner, dealing with employment law took more time than any other management responsibility—literally hundreds of hours. Since the election of the Labour Government in 1997, employment laws and regulations, ranging from enhanced maternity and paternity rights to the minimum wage, have been piled on to British business. For the employer, particularly for the many small to medium-sized businesses that create the majority of jobs in my constituency, that has meant major additional cost in both time and money. The intense focus on employee rights has ended up with the employer spending a huge amount of time ensuring that he is abiding by the law; it has made him wary of the consequences of even the most innocent error.

Under the previous Government the cumulative effect of employment law was to change the playing field fundamentally, leaving employers feeling defensive rather than confident about hiring people and managing their staff. I remember, a few years ago, having a quiet chat with a young member of my staff who had been playing on the internet for days on end. The following day, I had a call from her mother saying that if I did not follow correct disciplinary procedures the family barrister would be in touch. The quiet chat and the informal word of warning became formalised under Labour. Employment became a transaction.

Even John Hutton, the former Business Secretary, admitted that things had gone too far. In 2008, he said:

“Exercising the right to work ultimately depends on getting the right balance in employment law. Having a multiplicity of employment rights won’t amount to a great deal if you can’t get a job in the first place.”

[Gavin Williamson (South Staffordshire) (Con)]

Having employed people in the past, I know that there is often a real fear of taking on new staff because if one does not get it right first time, the consequences of trying to get rid of a member of staff can be costly to the business. Does my hon. Friend agree that this puts lots of small and medium-sized businesses off expanding?

[Julian Smith]

My hon. Friend is absolutely right. A close friend of mine is starting a new business and she told me the other day that her business adviser suggested she should hire people on short-term contracts to avoid the pitfalls of having permanent staff. At the key moment when we need hundreds of thousands of new jobs, the advice to a budding entrepreneur is to avoid permanent staff if they can.

According to the World Bank’s “Doing Business” report, employing workers in the UK has become harder every year since 2007. The report shows that UK labour market flexibility has slipped down the international league table from 17th in 2007 to 35th in 2010. The UK is now behind many European countries, including Switzerland and Denmark, as well as Australia, Canada, the United States and others, on labour market flexibility.

Even those figures do not take into account the effect on small businesses of the sheer worry about these burdens or of the realities of a world in which Britain will be under increasing pressure to compete for internationally mobile business jobs. Small business owners worry about this stuff. That is why they are good at what they do—because they are worriers. By putting so many worries and concerns around the key assets of their business—staff and people—Governments have forced them to spend less time on their businesses. Tom Bannister, who runs the Coniston hotel near Skipton, does not have an HR department, so each employment change that comes from this House takes him away from running his hotel and outdoor centre. We need hard-pressed owner-managers such as Tom to be lying in bed at night worrying about things like the spa development he is currently considering rather than whether they have dealt adequately with the “protected characteristics” of their employees as determined by the Equalities Act 2010.

[Julian Sturdy (York Outer) (Con)]

Like my hon. Friend, I have a number of businesses in my constituency who have contacted me with similar concerns. They want to grow their businesses and create jobs, which is surely what we want in these difficult times, but if we continue to tie businesses down with red tape and bureaucracy, we will prevent that. It is important to get away from that approach.

[Julian Smith]

I thank my hon. Friend for those comments. It is not just small companies that are affected: the cumulative effect of the measures is also significant for bigger businesses. Before I came to the House I was a head-hunter who worked with some of the biggest companies in the world. I saw how easy it was to put a senior employee in an international location rather than in the UK. I have a long list of examples whereby, when it came to choosing between London, New York or Asia, London came last. The cost of managing and getting rid of staff often tipped the balance in favour of another location. That just happens without fanfare or fuss, and that is why, like our tax and immigration policies, our employment policy must be ruthlessly competitive. The competition that the UK faces is becoming intense. Over the next few years we desperately need people to take the risk, set up businesses, invest in existing ones and create jobs here in Britain.

Labour increased its depressing legacy of employment law in its dying days, with measures on agency workers, the Equalities Act 2010 and additional paternity leave. Each measure will have a major effect on British business. For example, the new dual discrimination laws, with limitless liability, mean that employers will have to focus even more on protecting themselves, and, with discrimination law changing so often and widening to include more and more employees, is it any wonder that entrepreneurs fear taking on their first member of staff?

[Nigel Adams (Selby and Ainsty) (Con)]

I concur entirely with what has been said. Like many others now in the Chamber, I ran a small business for a number of years, but employment legislation is not the only thing holding back small businesses. In North Yorkshire, as my hon. Friend will be aware, the county council has stopped traders placing advertising boards outside their premises. We have just been through—

[Madam Deputy Speaker (Dawn Primarolo)]

Order. This is an Adjournment debate about employment law, so if the hon. Gentleman intervenes again perhaps he will keep to the point.

[Julian Smith]

I agree with my hon. Friend. That is all part of the same burden.

The second piece of legislation that we are going to acquire from Labour is the measure on additional paternity leave. The time spent learning about and then administering the process of additional paternity leave will have a huge impact. From early next year, rather than focusing on job creation, business will be administering how best to let dads go off. Business was not even consulted properly. In a recent written answer, the Government admitted that only 111 companies—111 throughout Britain—had been involved in the consultation on that policy. Why did Labour create those laws with such little consideration for the risk-takers whom they affect?

With all that legislation rolling over from the previous Government, we surely need a pause—a break—in employment law. The coalition is doing many positive things to create the conditions for growth, such as scrapping Labour’s jobs tax, introducing the national insurance holiday for businesses in Yorkshire and outside the south-east, and cutting corporation tax, but at a time when we need to let business focus on growth, the coalition is pushing forward with more legislation on employment law.

First, there is the removal of the default retirement age, with no offsetting measures to assist companies in managing out their staff.

[Anne Marie Morris (Newton Abbot) (Con)]

My hon. Friend is absolutely right that the default retirement age removal is causing problems. In my constituency, many businesses, including Centrax, a very large employer, have come to me and said, “The challenge is that it will be harder to negotiate different packages for older workers.” The budget for recruiting new young people will inevitably shrink, too, and businesses will incur legal costs when they have to justify a default retirement age for a particular job.

[Julian Smith]

My hon. Friend makes a very important point, and I have heard of similar examples. I spoke to the representatives of a local business last week, and they were frustrated because their poorly performing older manager, whom they assumed would retire next year, is digging in—potentially for life—following the announcement of this law.

Then there is the commitment to flexible working rights for all employees, and the sharing of parental leave for mothers and fathers. Consultation on those measures is about to start.

Finally, the Government are considering whether to include small and medium-sized businesses in Labour’s right-to-request-training laws, or repeal the law altogether. That law will create the crazy situation in which, even though most companies cover training in their employee appraisals, employees will have the right to disregard the appraisal discussion and ask for a separate discussion on training. At a time when British businesses are being encouraged to create more jobs than ever, they will have to deal with the hefty employment legislation of the previous Government and several chunky pieces of legislation from the coalition, taking up the valuable time that they could be spending on creating more jobs and more wealth.

I have asked for this debate to urge the Minister to look again at these issues in light of the Government’s forthcoming growth White Paper and the urgent need that we have for jobs in our country today. I am keen to receive from the Minister answers to a number of fairly detailed questions. First, what steps are the Government taking on their pledge in the coalition agreement to review employment and workplace laws for employers and employees? The decisions so far seem to have been employee-led. Secondly, why was the decision made to introduce additional paternity leave provided by the previous Government given that the coalition plans to consult and then introduce its own shared parental leave in this Parliament? Thirdly, when will the Minister confirm whether small and medium-sized enterprises are going to be exempted permanently from Labour’s right-to-request-training legislation, and is he considering full repeal? Fourthly, why was the decision made to introduce flexible working for parents of children up to age 17 given that the Government are planning to offer flexible working to all employees during this Parliament?

Fifthly, I understand that the Institute of Directors has presented a case to the Minister saying that 90 to 95% of private sector companies would be exempted from the scope of the agency workers directive if the Government followed advice provided to the IOD by a senior member of the European Commission. Why have not the Government taken this dispensation? Will the Minister publish any advice that he has received that contradicts that received by the IOD? As Britain will now no longer have a default retirement age, unlike many other European countries, what steps is the Minister taking to ensure that this does not result in a less competitive employment environment in Britain, and what offsetting measures is he considering to develop other mechanisms by which companies can manage out staff?

I apologise to the Minister for such a long list of questions, but I passionately believe that we need to address these issues. With limited fiscal levers to attract business in the UK, we can use competitive employment law to attract the growth that we need. I urge the Minister to lead the charge in playing his role in the Government’s growth White Paper. He should commit today to a holiday from new employment law in 2011, pausing his plans for the sake of jobs. I also urge him to give British business light at the end of the tunnel by strengthening the Government’s commitment to a thorough review of employment legislation and engaging all parts of business, and lots of businesses, in that review—they will be happy to help. We should consult companies of all shapes and sizes from all parts of the country. I am particularly able to supply some frank Yorkshire business people to engage in that process.

During the review, we need to ask some tough questions. For small businesses, what have been the cumulative effects of all these employment laws? How do we make it easier for small businesses to hire and to fire? How do we ensure that the “doers and grafters” of whom the Prime Minister spoke in his conference speech are freed up to take on staff? For larger companies, what is the impact of our employment regime on their costs? How do we ensure that we are truly competitive with other locations for global business? How negative are the effects of our employment law regime on attracting foreign investment?

A holiday from new employment law in 2011 should take pride of place in the Government’s growth White Paper. I would be grateful for the Minister’s support in my campaign to make this happen. Along with the other positive enterprise proposals from the coalition, grasping the employment law nettle will be a big boost for growth.

--- Later in debate ---

[Mr Davey]

One of the objectives of the employment law review—I hope that the hon. Gentleman will see this when we publish it—is to try to begin to turn that tide. I hope, as I continue with my remarks, that the hon. Gentleman will begin to see that sense of direction.

In the coalition agreement, we have tried to ensure that we can assist families and employers to get the right balance between work and home. Quite rightly, child care is no longer seen as just the mother’s responsibility. Fathers are playing an increasingly significant role in caring for their children, with more than 90% of fathers taking time off around the births. The hon. Gentleman will know how important that is for families and for the development of children. The Prime Minister is particularly keen to encourage such a practice.

We are planning to introduce a new system of flexible parental leave. The current system of 52 weeks ‘maternity leave and two weeks’ paternity leave is completely unbalanced and does not meet the needs of modern families. Additional paternity leave goes some way to providing parents with greater room for manoeuvre over how they balance their working and caring responsibilities, but it still constrains parents’ choices and reduces employers’ flexibility. We believe that our proposals will be more welcome to employers because of the increased flexibility that they provide.

The hon. Member for Skipton and Ripon asked why we were introducing the additional paternity leave now, when we plan to introduce shared parental leave later. That is a fair question, which I considered carefully. However, when we examined the matter, we noted that the regulatory regime was not quite as burdensome as he implied in his speech. Employers do not have to implement the system unless and until someone applies for additional paternity leave. The regulatory impact assessment that accompanies the measure suggests that that would affect under 1% of employers a year. Although that might be a burden on those employers, the way in which we propose to introduce the measure means that it will be relatively light, even for the small number of employers who have to use additional paternity leave before the shared parental system that we plan to bring in is introduced.

Another reason that weighed heavily on my decision to proceed with the measure is that its passage through the House and removing the regulation would entail some cost to businesses. However, more important, it will provide some serious lessons from employers who have to administer additional paternity leave, enabling us to get shared parental leave right. It is a sort of pilot, and without it, we would lose the lessons from it, creating a danger that, when we implemented shared parental leave, we would not do it in an optimal way. I therefore hope that the hon. Gentleman understands that, although it was a difficult decision, it made sense for employers, and that is why we went ahead.

[Julian Smith]

I thank the Minister for his detailed response. Does that mean that he might buy my idea of a holiday in 2011 so that the pilot can happen and the new law is not introduced during a crucial period for British business?

[Mr Davey]

I can confirm that I want a holiday next year, but although I have some sympathy for the hon. Gentleman’s suggestion of a holiday for employment law, it would be impossible. Under EU legal obligations, we must implement some employment law next year. For example, the agency workers regulations come into force in October 2011. We would contravene our obligations under EU law if we did not implement them. Of course, additional paternity leave also comes into effect.

Although we are committed to ensuring that we review employment laws and take businesses’ considerations into account, as the hon. Gentleman said in his speech, some items are legacies from the previous Government. We had to think carefully about them, but our judgment was that we could not not introduce them.

The hon. Gentleman mentioned the claim by the Institute of Directors that we are gold-plating the agency workers directive. I met representatives of the Institute of Directors and discussed the matter in detail. I asked for the reason why they thought that and for their legal advice. We fundamentally disagree with the organisation on the matter. I assure the hon. Gentleman that we have no intention of gold-plating the agency workers regulations. We inherited them. He knows that the directive finds its legal basis in the social partner agreement between the CBI and the TUC. He also knows that that agreement, to which the CBI signed up on behalf of British business, introduced a 12-week exemption. When I discussed with businesses how we could look at implementing the agency workers regulations, I asked whether, if the social partners did not like what we were doing, they would be prepared to risk losing the 12-week exemption. Businesses made it absolutely clear that the 12-week exemption was critical to them above anything else. We therefore decided that, to ensure that we did not lose the exemption that the CBI had won, we had to proceed to implement the agency workers regulations.

I had hoped, in discussions with the CBI and the TUC, that we could reach an agreement on ameliorating some of those regulations in a way that would benefit workers and employees as well as employers. I tried very hard to achieve that, but I was unfortunately unable to do so. However, I can reassure my hon. Friend that we worked very hard. If he reads my ministerial statement on the issue carefully, he will get the flavour of the frustration that I felt in being unable to go further, but as he said, we inherited that measure. We tried our best to ensure that it is not as damaging as it could otherwise be. We will now engage with employers and trade unions on the guidance for the implementation of the regulations, which is an important step.