Employment Rights Bill

Lord Londesborough Excerpts

2nd reading
Thursday 27th March 2025 Lords Chamber

[Lord Londesborough (CB)]

My Lords, I have just four minutes, so I will not beat about the bush. While I understand the need to bear down on unscrupulous employment practices, this Bill is fundamentally misguided, out of date and out of touch and will wreck the spirit of enterprise. It will damage jobs, productivity and wages across both the public and private sectors. That is not just my view, but the OBR’s. The impact assessment, which claims that the Bill will have a net positive impact on growth, is guilty of fantasy economics, suggesting that its authors have little feel for, or experience of, creating jobs, developing careers or even meeting payroll.

Perhaps most troubling is that all the clauses in this 300-page Bill, and its 200 pages of Explanatory Notes, apply to all employers without exception, whether you are a UK multinational with a workforce of 100,000, a start-up with 10 staff or a family business with two employees. It is one size fits all, whether we are talking about day one rights, probationary periods, guaranteed hours or flexible working. This Bill shows scant regard for building a competitive economy with modem working practices. It discriminates against SMEs—our country’s engine of growth—and offers nothing for freelancers and the self-employed, for which perhaps we should be grateful.

My views are shaped by my lived experience over 30 years as an entrepreneur and employer, from a start-up with two employees around the kitchen table to building a workforce that grew to 10 staff, then to 50, 100 and eventually to 300 employees, plus 100 freelancers. I learned what it takes to recruit and train people effectively, to incentivise and reward them and to develop their careers from probation to permanent, from junior to management and from internship to becoming an equity partner. I took risks and made many mistakes along the way, from hiring the wrong people, holding on to staff for too long, overpaying, underpaying, growing too quickly and having to downsize in the rough and tumble of the free market. But here is the thing: I never once ended up in an employment tribunal and my experiences with staff and freelancers were overwhelmingly positive, driven by common mutual interest and without the need to resort to onerous employment manuals, interfering HR departments or, indeed, employment lawyers.

This Bill suffers from overreach and will kill entrepreneurial spirit, coming as it does on the back of the misguided NICs Bill, on which I have fought hard to protect our smaller businesses—and I will go into battle again on their behalf in Committee on this Bill, mindful that the Federation of Small Businesses reports that two-thirds of its members say that the proposals in the Bill will make them curb hiring. There are two professions that will benefit from this Bill—HR practitioners and employment lawyers—but, in terms of productivity, this Bill is terribly timed and represents another giant vampire squid sucking the life out of our economy.

Employment Rights Bill

Lord Londesborough Excerpts

Committee stage
Tuesday 29th April 2025 Lords Chamber

This Bill will have massive impacts on millions of small businesses which are nowhere near the 50-employee threshold. If that does not negatively impact growth, it will be a miracle. I also particularly worry about scale-ups and start-ups, but, fortunately, the noble Lord, Lord Londesborough, who knows far more about them than me, will—I hope—be speaking about them in due course. In the meantime, I beg to move.

[Lord Londesborough (CB)]

My Lords, I rise to speak to Amendments 5 and 124 in the name of the noble Baroness, Lady Noakes, to which I have readily added my name.

Before I get stuck into the detail, I should perhaps offer an apology for comments that I made at Second Reading, when I compared this Bill to a giant vampire squid sucking the life out of our economy. Although this metaphor generated considerable media coverage, it prompted several eagle-eyed members of the public to point out that the vampire squid is no bloodsucker as it eats only dead organic material. It turns out that I inadvertently picked the only mollusc that does not eat live prey, so I stand corrected and apologise to the marine life community for this oversight.

As far as the Bill goes, I make no apology. I will focus on Part 1 and its impact on our all-important start-ups and scale-ups. We have 35,000 scale-ups in the UK, contributing £1.6 trillion to the UK economy annually; that is more than 50% of the value of the whole of the UK’s SME economy, despite these companies making up less than 1% of the SME population. They are crucial because they represent the most dynamic element of our economic growth: they create jobs at the fastest rate, promote their staff at the fastest rate and attract significant investment.

I should declare my interests as set out in the register: I chair, advise and invest in a range of start-ups and scale-ups, and it is their lived experience that informs my comments, along with my own years as a micro, small and medium-sized employer.

Working for scale-ups and start-ups is both demanding and rewarding. Entry-level jobs tend to pay less than average and have considerably fewer benefits than average, but progress more rapidly in terms of pay, bonuses and promotion, with such employees often becoming equity stakeholders. Scale-ups thrive on flexibility and a performance culture—something that Part 1 of this Bill seems to ignore.

Another important group sitting within the small and micro sector is family businesses employing fewer than 50 staff, the majority of them having fewer than 10 employees. These businesses often have only one member of staff covering each responsibility, and their HR has to be covered by the owner or the senior manager. Subjecting these groups to the full battery of clauses and schedules in Part 1 of this Bill is, I believe, disproportionate, costly, distracting and growth-sapping.

On the subject of costs, the Bill’s impact assessment suggests a burden of an extra £5 million per annum for all employers and admits that this will disproportionately fall on small and micro-businesses, as the noble Baroness, Lady Noakes, just outlined. However, that is a crude estimate and appears to have been drawn very narrowly. It fails to assess the invisible costs of complicated recruitment, performance reviews, dismissals and the general administration of HR. The smaller the business, the greater the distraction from core activities, tying up key leadership and management time in less productive areas. In plain language, this means lost output.

Recruitment is critical for small and micro-businesses and is set to become far riskier in an already difficult climate. Part 1 of this Bill threatens to complicate probation, performance reviews and dismissal for fair cause. Day one rights and dismissal constraints will deter risk-taking and reduce employment opportunities at entry and graduate levels, especially in middle and senior management. It will encourage employers to hold on to bad hires and to promote mediocre or underqualified ones.

Flexible working, shift changes and guaranteed hours have already been covered in the previous group, so I will not duplicate, other than to say that this is a special problem for small and micro-businesses, especially those that rely on part-time workers and shift patterns. The hospitality sector is a prime example.

I shall finish by countering the Government’s expected response to this group of amendments: that there should be no exemptions as these new employment rights should apply universally across the economy, and that we should not create a two-tier workforce. Although I understand the thrust of that argument, it does not reflect the real employment market. SMBs, as we have already heard, cannot compete with large businesses when it comes to pay scales, training, promotion opportunities and a whole range of benefits, including pensions. Indeed, most have no HR function, let alone department, and that reflects their size.

However, what SMBs do have to offer is a friendly working environment; greater flexibility than average; a stakeholder culture, whether that is reflected in equity or in identity; and the fact that every role in their organisation is a critical part of the business, leading to strong employee loyalty and identification. Applying to small and micro-businesses consisting of five or 10 staff the very same employment rights that are applied to multinationals such as Amazon, which employs 75,000 people in this country, will do serious damage to our jobs market. That is why I wholeheartedly endorse these amendments.

[Viscount Trenchard (Con)]

My Lords, I rise to speak briefly in support of Amendments 5 and 124, so ably spoken to by my noble friend Lady Noakes, and well supported by the noble Lord, Lord Londesborough. I also support Amendment 282, which I expect will be addressed by my noble friend Lord Sharpe or my noble friend Lord Hunt.

The impact on the smallest businesses will, as stated by my noble friend Lady Noakes, be great. The cost to business of implementing the Bill could be as much as £5 billion, according to the noble Baroness, Lady Jones of Whitchurch. She said that this would be a transfer to the lowest-paid segment of the workforce. I do not think that that would be the result. My noble friends’ amendments would mitigate the stifling effect on small businesses that the Bill will have.

Small and micro-businesses are already struggling with the additional costs of the increases in employers’ national insurance contributions introduced two weeks ago. It is small and micro-businesses that most need flexibility in the nature of the employment models they can offer workers. Putting such businesses into a straitjacket will remove employment opportunities for many of those who prefer flexible-hours contracts, and even for the many young people who actually quite like zero-hours contracts, or who would at least rather that such opportunities existed than not—which will otherwise be the consequence of enacting the Bill. My noble friend Lady Lawlor spoke convincingly on this matter in the previous group.

Part 1 of the Bill will prevent many small businesses taking the risks inherent in adding a new business line or expanding the size of their operations. I hope that the Minister will carefully consider the strong arguments made for the exemption of small and micro-businesses from these measures. In that way, the Government might achieve their declared aim of transferring value to the lowest-paid segment of the workforce.

Employment Rights Bill

Lord Londesborough Excerpts

Committee stage
Thursday 8th May 2025 Lords Chamber

These amendments are trying to preserve flexibility for the poor business owner. We all know that many business owners are having to close down. With some it is because of employment law, and with others it is because of the very high rates that they have to pay on the high street; there are many reasons. But here is an opportunity for them to preserve flexibility. I hope the Minister will give very careful thought to these amendments as we work our way through the Bill, because the alternative is lower employment, lower growth and people out of work because we have been too prescriptive.

[Lord Londesborough (CB)]

My Lords, I will speak briefly to Amendment 19A in the names of the noble Lords, Lord Sharpe of Epsom and Lord Hunt of Wirral, and offer my support for Amendments 20 and 21.

My main concern, as I expressed on the first day in Committee, is over the impact of guaranteed-hours contracts on the small and micro-business sector, specifically those with fewer than 50 staff. Amendment 19A is particularly relevant to start-ups and scale-ups, and we cannot ignore their high-risk operational context. Again, I declare my interest as set out in the register: I chair, advise and invest in a range of start-ups.

Clause 1’s right to guaranteed hours will inhibit job creation but also job mobility and flexibility, as we have heard, if applied to such businesses, to the detriment of both employer and employee. Rigidity—I think the noble Lord, Lord Hunt, used that word—is especially dangerous in a flat economy environment such as we have at the moment.

Small business planning requires agility and flexibility when creating new jobs. As we know, business circumstances will change, often on a month-to-month basis, given the natural volatility around budgeting, forecasting revenues, forecasting bookings and indeed anticipating demand. When we talk about

“the reasonableness of entering into a limited-term contract”,

we simply cannot afford to ignore the early-stage development of these companies and watch them avoid risk-taking.

The Member’s explanatory statement to Amendment 19A quite rightly points to

“unforeseeable changes in business conditions”,

and that is especially relevant to small businesses. As I know through bitter experience, as both an employer and an investor, there is often a huge delta between entrepreneurs’ forecasts and the actual outcomes. This is about not just seasonality, events or the weather but unpredictable customer demand.

We should therefore not handicap entrepreneurial risk-taking, which this economy so desperately needs to encourage, and specifically the creation of new jobs, by applying such blanket restrictions on limited-term employment contracts. We need a more nuanced approach, as this amendment suggests, and I ask the Government to give it serious consideration.

[Baroness Noakes (Con)]

My Lords, I support the amendments in this group in the names of my noble friends on our Front Bench. I have a number of concerns about the guaranteed-hours provisions in the Bill, one of them being that they are drafted almost wholly from the perspective of workers and pay little heed to the needs of employers. I do not believe that is a good way to create employment law to underpin a healthy economy.

On our first day in Committee, the noble Lord, Lord Barber of Ainsdale, who is not in his place today, and the noble Baroness, Lady Carberry of Muswell Hill, both spoke about the work of the Low Pay Commission on zero-hours contracts. I was grateful to them for being pointed in that direction. I have a great deal of time for the work of the Low Pay Commission, which is always balanced and very careful, so I went back and looked at the 2018 report. Unsurprisingly, I found that it does not provide the copper-bottomed support for the Bill that noble Lords opposite have claimed—I should also say that the employment bodies represented on the Low Pay Commission have told us that as well.

The Low Pay Commission did indeed recommend that workers should be offered guaranteed-hours contracts, but, importantly, it also recognised that there would be circumstances in which it would not be reasonable for the employer to have to do that. There is not a trace of that in the Bill. The Low Pay Commission was clear that the Bill should set out specific circumstances in which the employer would not have to offer guaranteed hours. The commission cited with approval some equivalent legislation which was at that stage going through the Irish parliament, which provided, among other things, that adverse changes in the employer’s business or the existence of temporary factors would allow employers not to offer guaranteed hours.

Like the noble Lord, Lord Londesborough, I believe that Amendment 19A is eminently reasonable in that context. It does not give an employer carte blanche to ignore guaranteed hours but allows for some genuine business circumstances to be taken into account by the employer when looking at whether guaranteed-hours contracts should be offered.

At the end of the day, if we do not have successful businesses, there will not be any jobs on any kind of contract available. As I said on our first day in Committee, I am particularly concerned, as is the noble Lord, Lord Londesborough, about small and micro-businesses, which really need to be allowed the flexibility if we are to protect the work opportunities of around half the private sector workforce.

Even if those small and micro-businesses survive the incredible bureaucracy associated with these guaranteed hours, they will potentially not survive the substantive impact of the hours if they are required in all circumstances to offer guaranteed-hours contracts. Of course, this is particularly the case in the hospitality sector, the largest user of zero-hours contracts; my noble friend Lord Hunt spoke about the problems in that sector. There are also very large numbers of small and micro-businesses in that sector.

Recognising some very limited flexibility, my noble friend’s Amendment 19A is actually very modest. It would go some way towards making this new requirement to offer guaranteed hours work in the context of businesses that have to face difficult circumstances, and at the moment the Bill pays no attention to that.

--- Later in debate ---

At the very least, to test the water, can we not say that we will have an impact assessment on whether the Bill will be positive to sectors that are absolutely drowning, in many instances because of things that this Government and the previous Government have done? Surely we have to ensure that something that is well intentioned to help workers does not do more harm than good. Therefore, we should support an assessment of what the impact will be.

[Lord Londesborough (CB)]

My Lords, I will speak to Amendment 63. I agree that the impact of Clauses 1 to 8 will be especially felt by these three sectors: hospitality, retail and social care. But, to be frank, I would not stop there; I advocate expanding this impact assessment, not only to small businesses and micro-businesses—noble Lords would expect me to say that—but to all key sectors in the economy. There will be huge employment variations sector by sector, and they need to be analysed and understood. As we keep hearing, one size does not fit all—although the Bill has a different view on that—and we have the issue of “mind the gap”.

Two other industries that certainly deserve such assessments are the creative industries, which we will debate on another day, and the gig economy. Some very disturbing numbers are already coming out of membership surveys from bodies such as the Federation of Small Businesses and the Institute of Chartered Accountants. I will share two bits of data from the ICAEW’s latest quarterly business survey for the first quarter of this year. It says that 53% of its members expect that the Bill will

“reduce their plans to hire permanent staff”,

and that 40% anticipate greater use of outsourcing because of the Bill—that is a very significant number.

What does this mean? It means—it is already happening—that employees will be coming off payroll and going into freelance and self-employed roles. We have an amendment coming up in many days’ time, or probably weeks; I will not read out the names of my noble friends who are behind it, but it is Cross-Bench and Liberal Democrat-sponsored and relates to the establishment of a freelance commissioner office. I think the Government may have very little choice on this, because the demands for the services of that office are going to go up exponentially, partly because of this Bill and also because of the national insurance contributions Bill. I will not repeat all those arguments.

I come to the second unforeseen consequence—although, frankly, these are not unforeseen, are they? They are foreseen. We can actually say with some certainty that the Government are encouraging the offshoring of jobs from the UK. This trend has been going on for decades, but is it really the objective of the Government, particularly for lower-paid and entry-level roles, to see a percentage of those jobs going off to countries such as India, Vietnam, the Philippines, Romania or Moldova? I am not against offshoring, but I think you have to be very careful about being seen to be encouraging it, and I believe the Bill is guilty of that.

On the assessment, which we hope will happen, the area that should be looked at in greatest detail is the impact on part-time jobs. We have heard already about the young graduates and students, but I will speak up also for older workers. Those of us here who sit on the Economic Affairs Committee—I see the noble Lord, Lord Davies, here—will be aware that we are conducting an inquiry on the economics of an ageing society. If the Government are to achieve their noble objective of raising the economic activity rate from 75% to 80% across all age groups, they will have to tackle the 50 to 70 year-old cohort.

In order to get people back into work, not just those who took premature retirement but those who have been on benefits for a long time, we will have to be far more flexible about creating part-time work, and I am afraid that the Bill is likely to deter the creation of part-time roles. So that is another area that I believe the impact assessment should be looking at, which is not just by sector but by type of job.

I am told by my friends in the recruitment industry, if I can call them that, that there is already a shift in hiring from permanent to interim, and that trend started at the beginning of this year and is accelerating. Again, national insurance contributions have pushed employment in that direction and the Bill threatens to do the same.

My final point, talking about assessments, is that HMRC may well want to conduct one to discover that its projected national insurance contribution tax revenues will, as a result of the Bill, take a significant hit as employees start being taken off payroll and moved into self-employed, part-time or even offshored roles.

[Baroness Stowell of Beeston (Con)]

Perhaps I might intervene briefly on this group. I support Amendment 63 but, like the noble Lord, Lord Londesborough, I wonder whether it is too modest in scope. As I said when I spoke on the last day in Committee, I am sympathetic to the kinds of effects that zero-hours contracts or some of the different kinds of practices that we see now have on employees in these businesses, which are often at the lower end of the pay scale.

However, I am very struck, by listening not just to this debate but to the debates on the various different things that we have been discussing this afternoon, that what we do not seem to be taking account of—or rather, to be more specific, what the Government do not seem to have taken account of in bringing forward this legislation—is that a lot of the practices that they are trying to remove or mitigate are the consequence of other things that have been introduced in the past which have been well intentioned in support of low-paid workers but are now creating other things. For instance, although it is going back some time now and various other things have happened since, I think about the arrival of tax credits when Gordon Brown was Chancellor. That led to people wanting to reduce their contracted hours because of the impact on their various benefits.

So when I hear people say that some of these measures—or, rather, the removal of some of these practices and various other things in the Bill—start to disincentivise people either being offered more hours or whatever, I worry that, given the way in which the Bill has been introduced and what feels like inadequate assessment through the proper stages—Green Paper, and all that sort of thing—we are creating yet more problems, which will then lead to the need for yet more legislation, which will never get to the heart of what we are trying to do here, which is to create an employment economy that is fair for employees and people do not feel that they are being exploited but have the flexibility that they need, and where employers, too, have the freedom and independence that they absolutely need to be able to employ workers and grow their businesses to contribute to the fundamental agenda, which is a growing economy that is fair to everybody concerned.