Ethnicity Pay Gap Reporting

Lord Callanan Excerpts

Monday 25th October 2021 Lords Chamber

[The Parliamentary Under-Secretary of State, Department for Business, Energy and Industrial Strategy (Lord Callanan) (Con)]

My Lords, I thank the noble Lord, Lord Boateng, for this debate. I am sure that we all agree that it has been both interesting and informative, and I am grateful to all who have contributed. I make it absolutely clear that the Government are committed to building back better from the pandemic. A key part of building a fairer economy is ensuring that our businesses and other organisations reflect the nation’s diversity, from factory floor to boardroom. We know that some companies face challenges ensuring equal access and fair representation of people from all backgrounds in the workplace, but the picture is complex, and outcomes vary substantially between ethnicities and by gender within ethnic groups.

In 2016, the Government asked my noble friend Lady McGregor-Smith to examine the barriers faced by people from ethnic minorities in the workplace and consider what might be done to address them. One of her recommendations was that government should legislate for the mandatory reporting of ethnicity pay data. The government response said that, while we were persuaded by the case, we expected businesses to take the lead in reporting voluntarily.

One year on, it was established that some limited progress had been made. Given this outcome, we published a consultation on mandatory ethnicity pay reporting. The consultation responses raised a series of issues. Establishing a standard ethnicity pay reporting framework is considerably more challenging than was the case for gender pay gap reporting. There are genuine difficulties in designing a methodology that provides accurate figures and allows for interpretation and meaningful action from employers, employees and the wider public, so we have continued to work with businesses and other organisations to better understand the complexities identified through the consultation.

We are also considering the findings of the Commission on Race and Ethnic Disparities, which were published earlier this year. This very good report makes an important contribution to both the national conversation about race and the Government’s efforts to level up and unite the whole country. In its report, the commission pointed to the statistical and data issues that can affect ethnicity pay reporting and proposed a voluntary approach. It recommended that

“all employers that choose to publish their ethnicity pay figures should also publish a diagnosis and action plan to lay out the reasons for and the strategy to improve any disparities.”

It further recommended that

“pay data should be disaggregated by different ethnicities to provide the best information possible to facilitate change. Account should also be taken of small sample sizes in particular regions and smaller organisations.”

To support employers undertaking this exercise, the commission recommended that

“the Department for Business, Energy and Industrial Strategy … is tasked with producing guidance for employers to draw on.”

We are committed to taking action, but we want to make sure that we are doing the right things that will genuinely help to move things forward. Key to that is determining what it makes sense to report on and what use the data may be put to. The commission’s report and our further work with businesses and other organisations identify a wide range of technical and data challenges that ethnicity pay reporting brings.

First, there is statistical robustness. In 2019, the Royal Statistical Society argued for a minimum sample size per category of at least 100 in order to draw valid conclusions. The purpose of this was to ensure that the calculation of a pay gap statistic would be reasonably reliable when interpreted by a non-statistician.

Secondly, there is anonymity. It should never be possible to identify any individual from ethnicity pay gap analysis. This means that a sample size has to be large enough so that it is not possible to link a number of individuals of the same ethnicity to a particular pay band.

Thirdly, there is data collection and the important issue of business burdens. A survey of over 100 organisations by PwC in August 2020 found that almost 35% did not currently collect any ethnicity data, with half identifying legal and GDPR requirements as a barrier to collecting the data. Among those organisations that did collect data, around half said that they were unable to publish their ethnicity pay data due to poor or insufficient data driven by low response rates.

Fourthly, there is reporting on a binary basis. One way to mitigate low employee declaration rates is to combine all individuals from an ethnic minority background into a single group for reporting purposes, but such an approach risks masking the significant variations in labour market outcomes between groups, and therefore the relevance of any action plan.

Fifthly and finally, there are skewed results. Reporting at a more granular level risks results being skewed by particularly large or small pay values because of low numbers within particular ethnic groups. The uneven geographical distribution of specific ethnic groups complicates the issue further. All of this creates complex challenges when deciding how best to take forward ethnicity pay reporting.

The Government are committed to taking steps to help employers tackle disparities in the workplace. We are now considering in detail what we have learned from the ethnicity pay reporting consultation, our further work and the commission’s report, and we will set out our response in due course.

I will pick up some points from the debate. The noble Baroness, Lady Falkner, made some good points about ensuring that any guidance for or support to businesses is not bureaucratic but focused on the issues where they most need support. I agree with her that we should focus our efforts on some of the drivers of the pay gap. The noble Lord, Lord Bilimoria, raised some interesting views from the CBI. I agree with him on the importance of business being inclusive.

The right reverend Prelate the Bishop of Bristol made an excellent contribution, and I agree with some of what she had to say. There is something of a precedent for requiring organisations to collect, share or publish ethnicity data. I also agree that it is possible to collect and publish such data under GDPR rules, but I return to the point I made earlier: that we must be very mindful when developing our approach of the burdens that collecting and publishing the data might impose on businesses, and which are appropriate and would be impactful.

The noble Lords, Lord Bilimoria and Lord Sikka, both mentioned the Parker review, which was set up in late 2015 and published its recommendations in October 2017, the main target being to ensure that all FTSE 100 companies have at least one person from an ethnic minority background on their board by the end of 2021, and for the FTSE 250 to do it by 2024. Although the review was not formally commissioned by Ministers, BEIS monitors its progress by providing annual statistical updates on FTSE 350 companies. It is financially sponsored by EY. Sir John and its steering board have agreed to continue to engage with business leaders to encourage adoption of the recommendations.

I agree with the noble Baroness, Lady Blower, that EPR provides an imperfect picture of race and ethnicity in work, and this is one of the challenges that we are working through to find the right balance between data that is actionable and comparable and the business burdens.

Finally, the noble Lord, Lord Boateng, said that this was all in the “too difficult” box, but it is in fact a difficult challenge to develop a standard ethnicity pay reporting system. We will announce the way forward in due course, taking account of a range of reviews, including those of the Commission on Race and Ethnic Disparities, the CIPD and the CBI, all of which we are currently talking to about how best to support employers.

I finish by thanking the noble Lord and all those who have contributed to the debate today.