Employment Rights Bill

Lord Sharpe of Epsom Excerpts

Consideration of Commons amendments and / or reasons
Tuesday 16th December 2025 Lords Chamber

Moved by

[Lord Sharpe of Epsom]

At end insert “, and do propose Amendment 120U as an amendment to Commons Amendment 120G, in lieu of Amendment 120N, and Amendments 120V to 120Y as amendments to Commons Amendment 120H, in lieu of Amendments 120P to 120S—

120U: Leave out subsection (3) and insert—
“(3) In section 124 (limit of compensatory award etc.), for subsection (1ZA) substitute—
“(1ZA) The amount specified in this subsection is £118,223.
(1ZB) Within three months of the day on which the Employment Rights Act 2025 is passed, the Secretary of State must conduct an impact assessment of the change to the limit specified in subsection (1ZA) made by that Act in order to assess whether the limit specified in subsection (1ZA) is the appropriate amount.
(1ZC) An impact assessment under subsection (1ZB) must consider the effect of the change to that limit on—
(a) the ability of claimants to obtain fair compensation,
(b) the operation and capacity of employment tribunals,
(c) the willingness of parties to settle claims without recourse to a tribunal, and
(d) public sector employers and public expenditure.
(1ZD) An impact assessment under subsection (1ZB) must include a consultation with—
(a) employers’ organisations,
(b) trade unions,
(c) organisations representing employment law practitioners, and
(d) such other persons as the Secretary of State considers appropriate.””

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120Y: Leave out paragraphs 2 to 5”

[Lord Sharpe of Epsom (Con)]

My Lords, as the Minister has just said, yesterday a letter was sent to Members of the House by six major business organisations, setting out precisely what many of us said in the Chamber last week. That letter makes one thing abundantly clear: the Government did misrepresent when they claimed that the abolition of both compensation caps was agreed between businesses and the trade unions.

The agreement—I choose that word carefully—was to remove the 52-week salary cap while retaining and increasing the overall monetary cap, which is currently just over £118,000. That was the compromise that was understood by the business community, but the Government have now chosen not only to abandon that agreement but to misrepresent it to the House. To prove that point, I will quote from the same letter from the six business organisations, which states:

“Unfortunately, we have not been able to reach a compromise that satisfies both the unions’ request for removal of the cash cap and our position of retaining it while raising the overall limit”.


This is made all the more serious by the Government compounding the error by behaving unconstitutionally. The removal of the compensation cap was introduced at ping-pong, having been debated at no previous stage of this Bill, neither in your Lordships’ House nor in another place. This House exists to scrutinise legislation, not to rubber-stamp late-stage surprises, still less ones accompanied by misleading assurances.

Let me be clear about the Conservative Motion that is tabled in my name. It reflects precisely the agreement that business groups believed they had reached with the Government: the removal of the 52-week cap, coupled with the retention and review of the overall monetary limit. There is no credible reason that the Minister can give for the Government to not accept it.

The Motion also provides for a formal review and proper consultation. I remind the House that, when the cap was increased under the Labour Government in 1999, that change followed consultation. When the coalition Government introduced a 52-week gross salary cap in 2015, the same approach was taken. There is no reason whatever why the Government should not proceed in the same careful, evidence-based manner again.

It is the Government’s choice, and theirs alone, to delay this legislation by introducing an entirely new issue at this final stage and then attempting to justify it on the basis of an agreement that did not exist. It is also wholly wrong for the TUC, the Minister in another place and others to attack hereditary Peers for doing precisely what they, like all noble Lords, are here to do: scrutinise legislation. It is also worth noting that the criticism of hereditary Peers was unfairly universal. No thanks were offered to at least one Liberal Democrat hereditary Peer who backed the Government.

If the 65 Labour Peers who were absent last week had attended, the Government would have likely prevailed. However, I rather suspect that some of them might have developed cold feet once they realised that they were being asked to support multimillion-pound payouts to water bosses and failed senior executives in financial institutions. Perhaps absence in this case was a mercy.

Over the weekend, the latest employment tribunal statistics were published. They are stark. There are now over 515,000 open cases, and that figure will rise, not fall, as a result of this decision. Why? Because well-resourced senior executives advised by the very best lawyers will now enter the system in greater numbers, clogging up tribunals, prolonging hearings and consuming judicial time. The inevitable consequence is that ordinary working people, many of whom have a legitimate and modest claim, will wait longer for justice or be denied it altogether.

This debate does not take place in a vacuum. Unemployment has risen again this month, as it has every month under this Government. Nearly 2 million people are now unemployed, this Christmas there will be 192,000 fewer in private sector payrolled employment than last Christmas, and young people are bearing the brunt. At a time when their futures are already being crushed by rising costs, weaker growth and dwindling opportunities, the Government choose to inject yet more uncertainty into the labour market. What on earth do Ministers think they are doing? Instead of encouraging job creation, they are creating incentives for litigation, delay and risk—precisely the opposite of what a fragile jobs market requires.

I say to the Liberal Democrats that it is a curious position to demand that water company bosses be dismissed while simultaneously supporting a policy that could hand such individuals eye-watering compensation. Something does not add up. What we are seeing instead is the Liberal Democrats choosing to form a coalition of chaos with the Government and abandoning British business, working people and the constitutional role of your Lordships’ House. In fact, according to data published by the Liberal Democrats themselves just last year, executives of water companies in England collected some £70 million in remuneration between 2021 and 2023, including nearly £41 million in bonuses. One is therefore entitled to ask why, in the space of a single week, their position appears to have shifted so dramatically. Perhaps the noble Lord, Lord Fox, can explain this sudden change of heart.

The Government have claimed that removing the compensation cap will not affect the level of awards. The Ministry of Justice’s own data shows that the median award of just under £7,000 is derived from just 650 tribunal awards. Yet each year there are many thousands of potential unfair dismissal claims, the overwhelming majority of which never reach the point of an award because they are settled long before they reach that stage. The reason those cases settle is the existence of a statutory maximum. The cap provides a known endpoint and encourages realism from both parties. Remove that ceiling and settlement becomes vastly more difficult. Claims run longer, positions harden and costs escalate—and tribunals, which are already overwhelmed, are left to pick up the pieces.

Even President Macron recognised that the absence of such a cap was harming French competitiveness and introduced one in 2017. It is a sorry state of affairs when France has something to teach a British Government about competitiveness. The only country in Europe without a statutory cap on unfair dismissal compensation is Luxembourg, which has a youth unemployment rate of 20%.

I have a few questions for the Minister. What conversations have Ministers had with the financial services sector, where concern about this change is profound? Will the promised impact assessment be serious, comprehensive and honest, and will it include the risk of opportunistic and speculative claims, the increased burden on the public sector and the likely cost to the taxpayer? The original Employment Rights Bill impact assessment was, frankly, inadequate—a fact recognised by the Regulatory Policy Committee, which issued a red rating. Will the Government now guarantee that the impact assessment on abolishing the compensation cap will not meet the same fate and that it will be detailed, rigorous and transparent? If it becomes clear, as many of us fear, that the removal of the cap leads to tribunal congestion, rising costs and injustice for ordinary workers, will the Government commit to reintroducing a cap, as President Macron did? Finally, will Ministers undertake to consult properly with employment law practitioners, the majority of whom oppose this decision, alongside businesses both large and small?

In conclusion, because of the Conservative Party a six-month qualifying period has been secured. However, that alone does not remedy the fundamental flaws of the Bill. The £5 billion cost remains. The costs of a raft of 1970s-style trade union reforms have not been properly identified, let alone accounted for, by the Government, and I repeat that all this is against a backdrop of rising unemployment. Let me be completely clear: the next Conservative Government will repeal every job-destroying, anti-business measure in this unemployment Bill. I beg to move.

[Lord Pannick (CB)]

My Lords, the noble Lord, Lord Sharpe, mentioned part of the letter written to the Business Secretary yesterday by six business groups including the CBI, the Federation of Small Businesses and the British Chambers of Commerce. What he did not mention is that the letter from those groups also said that

“now is the time for Parliament to pass the Bill”,

despite their concerns. That seems to be a much wiser approach than that adopted by the Conservative Front Bench—not least because Motion A1 raises no great issue of principle. It raises a request for an impact assessment.

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[Baroness Lloyd of Effra (Lab)]

I thank the noble and right reverend Lord for his question. As I mentioned last week, the context here is Bill specific and the changes that have been proposed and have been put in terms of this tripartite agreement were in response to issues that had been raised in your Lordships’ House. We went away and convened a particular mode of operating, and we have brought it back as a Bill-specific package. As I also mentioned last week, there are many discussions in the House about how we want to take business forward. The Leader of the House has set that out very clearly. That is the way we intend to proceed more generally.

[Lord Sharpe of Epsom (Con)]

My Lords, I am grateful to all noble Lords who have spoken in this very brief debate. The noble Lord, Lord Pannick, is of course right—I did not quote that bit of the letter because the Minister did. The House generally does not like needless repetition, so I am following the rules.

I am very grateful to the Minister for those assurances, and I am somewhat reassured. I am grateful—correct me if I have any of this wrong—that the impact assessment will be published before commencement and will be public and transparent and include a dispute resolution mechanism, that the tripartite agreement will endure going forward in further discussions around the Bill, and that all stakeholders will be consulted widely. That is, in effect, what we were asking for. The simple fact of the matter, though, is that we on these Benches will continue to hold the Government to account on behalf of the wealth creators, the businesses, the employers and their workers in this country.

I have heard what has been said and will emphasise a point made by the noble Lord, Lord Vaux, which I should have made in my speech: we are particularly concerned about the impact of the entire Bill on small businesses. We will return to that theme unless their interests are very carefully protected going forward.

As to the comments by the noble Lord, Lord Fox, regarding the strategic position, I am not entirely sure what the strategic position is. But I am grateful for his comments.

I am also enormously grateful to all those on His Majesty’s Loyal Opposition’s Benches and the many on the Cross Benches who stuck to their principles. We have achieved a great deal and made a bad Bill marginally more palatable. I beg leave to withdraw Motion A1.

Motion A1 withdrawn.