Ethnicity Pay Gap

Paul Scully Excerpts

Monday 20th September 2021 Westminster Hall

[The Parliamentary Under-Secretary of State for Business, Energy and Industrial Strategy (Paul Scully)]

It is a pleasure to serve under your chairmanship, Mr Hosie. I congratulate my hon. Friend the Member for Carshalton and Wallington (Elliot Colburn) and the Petitions Committee on securing this debate on a really important issue. I am sure that we can all agree that it has been an interesting and informative debate, and I am really grateful to everyone who has contributed.

My hon. Friend the Member for Carshalton and Wallington did an excellent job of opening the debate, as one would expect of him and of a member of the Petitions Committee. As you may know, Mr Hosie, I served on the Petitions Committee for a number of years, and I know from personal experience how important and valuable its work is. My hon. Friend set the scene in a very balanced and comprehensive way and demonstrated the complexity of the issue, showing that it is not simply a binary one. There are a lot of concerns and possible unintended consequences, which I will explore in a second, and we need to put those into the mix in order to make sure we get our consideration of this subject right.

Petitions are a great way to ensure that we do not overlook issues, and that we in Parliament, in Government, and in my Department consider the matters that are of most concern to the people we represent. Today’s debate is no exception to that: the petition was signed by over 130,000 people, including 322 people in my own constituency of Sutton and Cheam, which is testament to the interest there is in ethnicity pay reporting as a means of achieving a fair workplace. I understand that the petitioner, who is here today., the many people who signed the petition, and the MPs who spoke today and others are really concerned that the Government have yet to publish their response to the 2019 consultation on mandatory ethnicity pay reporting. Clearly, the past 18 months have not been what any of us were expecting, but I want quickly to set out the journey we are on in regard to ethnicity pay reporting, giving some background and explaining some of the issues we are juggling as we consider how best to take things forward.

First, I should make it absolutely clear that the Government are committed to building back better from the pandemic, and building back fairer in doing so. People from all backgrounds must have the opportunity to achieve their potential, and 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. That is essential to our levelling-up ambitions.

We know that we face challenges in ensuring equal access and fair representation for people from minority ethnic backgrounds in the workplace, and that we need to do so much better. Although they are improving, employment rates for ethnic minorities continue to be lower than they are for white people. The evidence also shows that once in work, people from ethnic minorities progress less and earn less money than their white counterparts, but the picture is complex, and outcomes vary substantially between ethnicities and by gender within ethnic groups. For instance, over two in five Pakistani or Bangladeshi workers are in the three lowest-skilled occupations, but Indian people are the most likely of any ethnic group to work in the highest-skilled occupations and have the highest average hourly pay.

I said that I would set out the journey that we are on. In 2016, as has been mentioned, the Government asked Baroness Ruby McGregor-Smith to examine the barriers faced by people from ethnic minorities in the workplace, and to consider what we might do to address them. One of her recommendations was that the Government should legislate for mandatory reporting and ethnicity pay data by £20,000 pay band. The Government’s response said that they were persuaded by the case for reporting. Baroness Ruby McGregor-Smith’s report highlighted the fact that equal participation and progression across ethnicities could be worth an additional £24 billion to the UK economy annually, but that we expected businesses to take the lead in reporting voluntarily.

In 2018, the Government commissioned a “one year on” report, which showed that, disappointingly, limited progress had been made. Just 11% of employees reported that their organisations collected data on ethnicity pay. Given that fact, we consulted on mandatory pay reporting in the same year. That consultation sought views on the benefits of monitoring and publishing ethnicity data; what might be reported; and what contextual information should be provided, such as narrative, action plans and ethnicity data classifications. The responses to that consultation raised a series of issues, showing that establishing a standard ethnicity pay reporting framework would be considerably more challenging than was the case even for gender pay gap reporting. There are genuine difficulties in designing a methodology that provides accurate figures and allows for interpretation and meaningful action by employers, employees and the wider public.

To give Members one example, we would expect the Department for Business, Energy and Industrial Strategy to be leading from the front when it comes to all things relating to workers’ rights in business. The Government website talks about civil service pay and says that

“of civil servants whose ethnicity was known, Asian and White staff had the lowest average annual pay (£27,200), followed by Black staff (£28,400), staff with Chinese ethnicity (£29,500), and staff from the Mixed ethnic group (£29,600), with staff from the Other ethnic group having the highest (£30,000)”.

The problem is that the average median annual pay for all of the civil service was £27,100—£100 lower.

Anyone with a basic grasp of statistics would say, “It’s not possible to have every ethnic group that is recorded above the average median pay for the entire civil service”. That is because 22% of the civil service did not identify, which is clearly skewing the figures. That is just one of the anomalies, or unintended consequences. It is not something that we cannot get around, but it is illustrative of how statistics can be misread and a problem misdiagnosed.

[Caroline Nokes]

It is interesting to note that Zurich commented that 87% of its workforce had identified which ethnicity they were from, so why is BEIS doing so much worse than a private sector company?

[Paul Scully]

This is the civil service as a whole. What I am saying to my right hon. Friend is that the figures are clearly skewed by that 22%. We want to get accurate reporting, but everybody, according to this, is above the average median pay. That cannot be the case; that is not possible. If the figures have been skewed, we cannot diagnose the problem from them, so we must work through those figures and work through a methodology, so that we can ensure that we have robust figures.

[Kirsten Oswald]

I am interested in what the Minister is saying. Can he clarify something: are the Government working through that methodology? What specifically are they doing, and when do they expect to have a system in place that does take account of the complexity that we all acknowledge but which absolutely must not get in the way of our making progress?

[Paul Scully]

I am grateful to the hon. Lady for letting me progress with my speech, because that is exactly the point that I was coming to.

We have continued to work with businesses and other organisations better to understand the complexities identified through the consultation. More recently, we have been working with the Business in the Community app and race at work charter members. My right hon. Friend the Member for Romsey and Southampton North (Caroline Nokes) spoke about people and businesses crying out for reporting. The number of charter members is currently 700, which is up from 300 this time last year, so there is clearly a big push of people signing up to the charter. One of the points in the charter is to collect data on ethnicity and the ethnicity pay gap. This work has looked particularly at action planning and what participating organisations believe to be the key drivers of the ethnicity pay gap: culture and leadership; recruitment; retention; and progression.

In parallel, earlier this year, the Commission on Race and Ethnic Disparities published its report, setting out a road map to racial fairness in the UK, which made an important contribution both to the national conversation about race and to the Government’s efforts to level up and unite the whole country. In the report, the commission pointed to the statistical and data issues that could affect ethnicity pay reporting and suggested a voluntary approach. It made a further recommendation:

“The Commission recommends 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. Reported ethnicity pay data should also 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 recommends that the Department for Business, Energy and Industrial Strategy (BEIS) is tasked with producing guidance for employers to draw on.”

[Abena Oppong-Asare]

The information that the Minister has provided is very helpful, particularly on the work that Business in the Community has done and also his quoting the report from the Commission on Race and Ethnic Disparities. I would be grateful if he clarified exactly what the Government have done since they conducted the survey and consultation in October 2018. I have heard what organisations have been working on, which is fantastic, but I would really like to hear what the Government have been working on to address this issue.

[Paul Scully]

The Government are clearly working towards this and I will continue developing that journey in my speech. What we want to do is to make sure that we are delivering on something that is possible. What I do not want to do is what the Leader of the Opposition did last week, by talking about setting a £10 minimum wage, then this week advertising for stewards for the Labour party conference and paying £9.75 an hour. Politics is the art of the possible. We must ensure we get this right and that we diagnose and solve the problem correctly.

[Abena Oppong-Asare]

I am still not clear what the Government have done since October 2018. I would be grateful if the Minister would clarify and set out what the Government have done since then to address this issue.

[Paul Scully]

As I said at the beginning of my response, I am developing that journey covering the last two years’ worth of work if the hon. Lady will remain patient. The hon. Member for Coatbridge, Chryston and Bellshill (Steven Bonnar) talked about racism, and clearly we need to ensure that we tackle racism in all its forms. However, the Commission on Race and Ethnic Disparities found that most of the disparities when tackling ethnicity pay do not have their origins in racism. There are other factors that may be at play, such as geography, class, sex and age. However, whatever the cause of the pay gap, it is essential that we get organisations to tackle this.

[Bell Ribeiro-Addy]

The Minister said the issue is not about racism. He also conceded that the data that has been received is not very clear, because a number of different groups are not actually reporting. How can he be so sure that the issue is not racism when the small amount of data he does have shows there is a difference between the pay of ethnic people and their white counterparts?

[Paul Scully]

I think the hon. Lady is mixing up two things, because the data I talked about was specific to the civil service. It was specifically to make the point that we can read different things out of statistics. What I was quoting about racism is not my view necessarily; it is the view of the report by the Commission on Race and Ethnic Disparities, which was tasked with looking at this and other issues. We are committed to taking action on ethnicity pay reporting, but we want to ensure we are doing the right things to genuinely help move things forward. Determining what it makes sense to report on and what use that data may be put to is key. It is far from straightforward.

The commission’s report and our post-consultation work with businesses and other organisations identify a wide range of technical and data challenges that ethnicity pay reporting brings. First, there is the challenge of statistical robustness. In 2019, the Royal Statistical Society argued for a minimum sample size per category of at least 100 to draw valid conclusions. Its purpose was to ensure that the calculation of a pay-gap statistic would be reasonably reliable when interpreted by non-statisticians, who would not likely be able to appreciate or measure the extent to which the statistic is affected by random chance.

The second challenge, as we have heard by my hon. Friend the Member for Carshalton and Wallington, is anonymity. It should never be possible to identify any individual from ethnicity pay-gap analysis. That means a sample size must be large enough so that it is not possible to link a number of individuals of the same ethnicity to a particular pay band. The third challenge is data collection and business burdens. A study of more than 100 organisations by PwC in August 2020 found that almost 35% did not collect any ethnicity data, with half identifying legal and GDPR requirements as barriers to collecting the data. Among the organisations that did collect data, around half said they would be 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. However, such an approach risks masking the significant variations in labour market outcomes between groups and therefore the relevance of any action plan. Finally, there is the challenge of skewed results. Reporting at a more granular level risks results being skewed by particularly large or small pay values because of low numbers of particular ethnic groups. If an employer with 300 people employs black individuals in the same proportion as the wider population—3% of England and Wales’ working population is black according to the Office for National Statistics—then their average pay would be calculated from just 9 individuals, and that assumes 100% declaration rates.

The uneven geographical distribution of specific ethnic groups complicates the issues further. In Wales, only 0.7% of the working-age population is black. It is therefore much harder to produce reliable and actionable statistics from relatively few data points. All this create complex challenges when deciding how best to take forward ethnicity pay reporting, but the Government are determined to take steps to help employers tackle race and ethnic disparities in the workplace. I think we would all agree that key to this endeavour is obtaining a good understanding of the issues that may be driving the disparities and, most importantly, developing meaningful action plans, based on that understanding. The Ruby McGregor-Smith report, the Government’s consultation on ethnicity pay reporting, and the commission’s work all make an important contribution to both the national conversation about race and the Government’s efforts to level up and unite the whole country.

The Government are now considering in detail what we have learned from the consultation on ethnicity and pay, our further work and the commission’s report. We are assessing the next steps for future Government policy, and we will set out a response in due course. Once again, I thank hon. Members who have contributed to the debate. It has been a valuable discussion.

[Stewart Hosie (in the Chair)]

I call Elliott Colburn for a brief winding-up speech.