Draft Trade Union (Levy Payable to the Certification Officer) Regulations 2022 Draft Trade Union (Power of the Certification Officer to impose Financial Penalties) Regulations 2022

Paul Scully Excerpts

Tuesday 25th January 2022 General Committees

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

I beg to move,

That the Committee has considered the draft Trade Union (Levy Payable to the Certification Officer) Regulations 2022.

[The Chair]

With this it will be convenient to consider the draft Trade Union (Power of the Certification Officer to Impose Financial Penalties) Regulations 2022.

The Minister will speak to both statutory instruments. At the end of the debate I will put the Question on the first motion and then ask the Minister to move the second motion formally.

[Paul Scully]

It is a pleasure to serve under your chairmanship, Mr Davies.

The purpose of the regulations is to enact the reforms made by the Trade Union Act 2016 to the powers of the certification officer—the regulator of trade unions and employers’ associations. The regulations were commented on by the Secondary Legislation Scrutiny Committee in the Lords in its 25th report, on grounds of policy interest. Before I explain the content of the regulations, it is important that I provide Members with some context to the reforms.

Unions play an important role in effective industrial relations. They also play a significant role in our workplaces and in wider society. There is therefore a legitimate public interest in trade unions running their affairs according to what is required of them. It is necessary that they have a responsive and diligent regulator. It is vital that we all have confidence that those affairs are conducted properly. The provisions in the 2016 Act are about proportionate and effective regulation. We are bringing the current powers of the certification officer up to date with the situation that we accept as completely normal in other sectors.

The 2016 Act brings in three reforms to the role of the certification officer. The first enhances the CO’s investigatory powers. Those reforms were implemented in commencement regulations made in December 2021, and they will commence in April. As they are not the subject of the regulations before us, I will only briefly explain the Government’s intentions.

The current system largely relies on union members bringing complaints to the CO—for example, on the conduct of elections. The 2016 Act gives the CO the same powers to investigate all breaches that she currently holds for financial matters and the register of members. That will enable her to act without having to rely on a complaint from a member. That is a wholly reasonable power for a regulator.

[Chris Stephens (Glasgow South West) (SNP)]

There are at least two Members present who served on the Trade Union Bill. Can the Minister remind us who can make a complaint to the certification officer?

[Paul Scully]

I will come back to that in my closing remarks. The CO will be able to take up her own views on a matter when there is a breach. It is a wholly reasonable power for a regulator and works on the basis of similar regulators.

[John Spellar (Warley) (Lab)]

I declare an interest as a 50-year member of Unite and its previous unions. How will unions protect against vexatious complaints from individuals who have a political axe to grind, whether from the extreme right or the Conservative party, as opposed to dealing with the members, who are supposed to be the people most concerned?

[Paul Scully]

This is not a political move. This is not politicising the regulator at all. The regulations are simply designed to bring the regulator in line with other regulators.

[Apsana Begum (Poplar and Limehouse) (Lab)]

The Minister may say that, but the regulations are effectively a tax on trade unions. Does he recognise that other bodies do not pay a similar tax? Broadcasters do not pay tax for Ofcom, and data processors do not pay tax for the Information Commissioner. Why does he feel that the regulations bring the trade unions in line with other sectors?

[Paul Scully]

I am glad the hon. Lady has brought the focus to the regulations rather than the wider scope of the 2016 Act, which was discussed in Committee and during the passage of previous regulations. On finances, the work of the certification officer at the moment is funded through fines and other fees but the regulations will wrap them up in a levy, which will be proportionate and affordable, because we responded to the consultation and made some changes accordingly.

[Kevin Hollinrake (Thirsk and Malton) (Con)]

Does my hon. Friend agree that it is quite common for industry to pay for its regulator? For example, the Financial Conduct Authority is funded directly by the banks, as are other financial schemes. That is quite a common way of funding such activities.

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[Paul Scully]

My hon. Friend is absolutely right. The regulations in no way attack; they are simply designed to fund the work of the regulator. Most regulators get their costs paid for by the people they regulate. That is eminently reasonable.

The regulations we are considering today bring into effect the second and third reforms set down in the 2016 Act, relating to financial penalties and the levy. We consulted separately on both reforms in 2017 and we conducted a further engagement exercise on the levy last year. The majority of respondents to both consultations and the further engagement exercise were trade unions. I know that they are concerned about the measures, as we have heard, but we have listened to their concerns and I will explain the measures in the regulations.

[Chris Stephens]

The Minister is being very generous in giving way. On the consultation in 2017, we should note that there have been two general elections since then, so why are the Government proceeding now?

[Paul Scully]

Because we have proceeded as quickly as we can, given the circumstances of parliamentary time. We wanted to make sure that, in response to the consultation, we could reflect the views of the trade unions by making some changes to the regulations. I will outline them in a second, but I repeat that this is the right time to be making the changes.

Under the financial penalties regulations, the certification officer’s enforcement powers are strengthened by allowing her to impose such penalties against organisations that breach their statutory obligations. The maximum amount of penalty will vary by the type of obligation breached and will be banded into three groups to take account of the severity of the obligation breached. That approach found support during the consultation.

The most important statutory obligations required of trade unions relate to political funding, the proper conduct of union elections and personnel propriety considerations. Those obligations are serious matters and I believe that the maximum penalty of £20,000 should be made available to the certification officer. That is in line with the penalties imposed by other bodies, such as the Electoral Commission.

For other failures of statutory governance requirements, a lower level of maximum penalty, £10,000, is appropriate, and that includes the requirement to keep the membership register up to date. Where breaches do not relate to failures of governance as a whole but to requirements to provide information, comply with investigatory requirements or breaches of internal union laws, the regulations limit such fines to a maximum of £5,000.

[John Spellar]

I apologise for taking the Minister back to the previous issue, but I have quickly scanned the explanatory notes. How will the levy be distributed between trade unions and employer associations? On what basis?

[Paul Scully]

I will talk about the distribution in a second.

The regulations also provide for a reduction in the maxima by 50%--bearing in mind that we are talking about the financial penalties—for unions whose membership is under 100,000. That means that no small or medium-sized unions will pay more than £10,000, £5,000 or £2,500, depending on the type of obligations breached. The Government took heed of consultation responses that charging interest would unduly penalise small unions, so we decided not to charge interest for the late payment of penalties.

The Trade Union (Levy Payable to the Certification Officer) Regulations 2022 provide for a levy on unions and employers’ associations to fund the certification officer’s work. It is no longer acceptable for the taxpayer to fund the regulation of these organisations. As my hon. Friend the Member for Thirsk and Malton said, a levy is one of the ways used to fund such regulators. The regulations establish a framework for the levy that is equitable, affordable, predictable and simple.

First, the time that the certification officer spends on each of the different categories of regulated organisations, which are non-federated trade unions, federated trade unions, non-federated employers’ associations and federated employers’ associations—

[Chris Stephens]

We know from the Trade Union Bill Committee that the net cost of the certification officer’s work was about £500,000. Can the Minister tell us what it is today?

[Paul Scully]

I will go through the structure in a little more detail shortly.

To make the levy equitable, the certification officer will be able to broadly apportion the levy between the different types of organisations according to how much time she spends on them.

Secondly, I know that many hon. Members and unions are concerned about the affordability of the levy. That is why the certification officer must exempt lower-income organisations from the levy entirely. No organisation will pay more than 2.5% of its annual income, as set out in its annual return to the certification officer.

Thirdly, it is important that a levy is predictable, so the Government will continue to fund the cost of any internal inspectors that the certification officer hires, as the use and cost of those can vary significantly. That was discussed during consideration of the Trade Union Act 2016. For the same reason, the Government will also fund the cost of any external legal advice that the certification officer may seek. That was not identified during consideration of the Act, but the Government believe that that approach will allow for a fairer levy.

Finally, the Government have taken steps to ensure that the levy is simple and transparent. The certification officer will need to aim to ensure that income from the levy matches expenditure over a three-year period, as well as explain how she calculated the amount of levy each organisation is charged. A number of the certification officer’s existing fees will be abolished and subsumed into the levy. That will be the subject of separate regulations, which will be made under the negative procedure, and we intend them to come into force at the same time as the levy.

[Imran Hussain (Bradford East) (Lab)]

Does the Minister accept that as the instrument stands there will be no cap on the amount of the levy and it could well run into millions of pounds?

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[Paul Scully]

The amount of levy paid will be capped to 2.5% of the union’s income, and it is the certification officer’s work that is being paid for—

[Imran Hussain]

Sorry, perhaps the Minister did not understand the point I am making. Does he accept that there is no cap in the instrument on the overall levy that the certification officer can charge and it could well run into millions of pounds? It will be completely at the discretion of the certification officer.

[Paul Scully]

The certification officer’s work will be charged accordingly, and the levy will be distributed at a level that is capped for each union and employers’ association. It will be for the certification officer to demonstrate what she has been doing in that regard and how those costs are broken down.

In response to requests by trade unions during consultation, two fees will be preserved—the fee for listing as an organisation and the fee for a union to be granted a certificate of independence. The costs of dealing with those applications will not be recoverable under the levy.

I recognise that these are significant changes for the organisations involved, albeit that they are the clear and required implementation of the Trade Union Act 2016. That is why we announced the reforms in June 2021, to allow trade unions and employers’ associations time to prepare before they are implemented in April 2022. That also allowed the certification officer time to put the systems in place to determine and charge the levy.

[Craig Mackinlay (South Thanet) (Con)]

I declare that I am a member of the Institute of Chartered Accountants in England and Wales. That body does similar things to those that a union might do: it represents its members, makes representations to Government and ensures that the regulated activities that we undertake as members are properly monitored and controlled. There has never been any issue that the Government should somehow pick up the bill for those things—

[Craig Mackinlay]

Or the taxpayer, absolutely. So I am quite surprised that there is huffing and puffing over this. The Minister has made it clear that 2.5% is the maximum. Has he calculated whether, if that 2.5% maximum levy, which I doubt will apply in many cases, were applied across the income of all the trade unions that are registered, it would cover the true cost of the certification officer’s work, or would there still be a shortfall that taxpayers were expected to make up?

[Paul Scully]

My hon. Friend makes some good points. As I say, there are exceptional cases when the taxpayer will be paying, in terms of the consultants that the certification officer may pay and the legal advice that she may require, because that will give unions and employers’ associations the certainty that they need. That is part of the proportionate approach that we have taken. None the less, the distribution that I have here, which I can share with the hon. Member for Bradford East, who asked about it earlier, assumes an estimated total levy of £1.15 million for the next financial year, based on the work that the certification officer has been doing.

[Mark Garnier (Wyre Forest) (Con)]

I may have missed this, but can the Minister confirm that any fines that are levied go back into the income of the certification officer, so that they subsidise future levies from unions?

[Paul Scully]

I will respond to that in my concluding remarks so that I am accurate for my hon. Friend.

The two sets of regulations will modernise the role of the certification officer so that she can continue to function as an effective regulator of trade unions and employers’ associations. It is not about constraining the ability of the unions and employers’ associations to do their valuable work. The certification officer has always operated independently of Government and that will continue.

These reforms are about giving the certification officer the tools she needs to do the job as effectively as possible and ensure that the taxpayer no longer foots the whole bill, but that unions and employers’ associations that can afford—

[Jessica Morden (Newport East) (Lab)]

How is this proportionate, given that in her annual report for 2021 the certification officer stated that she investigated only 34 complaints—one complaint for every 200,000 union members—and no enforcement was taken?

[Paul Scully]

The certification officer has had a number of complaints. She has investigated some and dismissed some. Yes, only one enforcement was taken, but that is not the sole purpose of her job. She does not look at that single case; there is a lot of work that leads up to that. As I say, this is proportionate. If she is not doing that much work, then the levy will be cheaper because she will not have that much to do. The levy is to cover the cost of the work. The certification officer is not having holidays to the Bahamas and making a juicy profit out of this. The levy is just covering the cost of the regulator. That is what is proportionate about it and why it is appropriate for the regulator to do it, rather than the taxpayer.

[Jo Gideon (Stoke-on-Trent Central) (Con)]

On a point of order, Mr Davies. We have had five speakers from the Opposition and only one has declared an interest as being a member of a trade union. I thought it was necessary to declare an interest, especially in this debate, and I seek clarification on that.

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[The Chair]

I am sure we are all grateful for that. If we could get back to the debate, I think we would all be very grateful.

[Paul Scully]

In my concluding remarks I will try to pick up any questions that I have not answered. I commend both statutory instruments to the Committee.

[The Chair]

I now call my constituency neighbour, Imran Hussain.

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[Paul Scully]

I am grateful to the Committee for its consideration of both sets of regulations and for Members’ valuable contributions to the debate. As I said in opening the debate, unions play a really important role in industrial relations and have a significant impact on our economy. That is why it is imperative that the public have confidence that they are being regulated effectively and fairly, and these reforms ensure just that.

It is a shame that there was a job lot of questions, because I now have eight minutes to answer all of those. Actually, we have just been re-rehearsing the arguments that were made on the overall premise, which was agreed in relation to the Trade Union Act itself. I will answer some of the questions. Clearly, the employment Bill, as the hon. Member for Glasgow South West knows, is primary legislation. It will be announced, when it comes forward in parliamentary time, in the Queen’s Speech. This measure—what we are addressing today—is completing previous legislation and therefore does not have to go through the same process. The certification officer has received 62 complaints in the last few years. Not all of those had to be investigated, because they could be dismissed. Eight were upheld, and there was one enforcement notice. That is what comes through to—

[John Spellar]

rose—

[Chris Stephens]

rose—

[Paul Scully]

I will not give way, because unfortunately I now have so little time to respond that I need to plough on.

In terms of vexatious complaints by third parties, third parties will not have a right to make a formal complaint or have them investigated, but clearly the certification officer may consider their representations in deciding whether to launch an investigation. The certification officer, unlike with a complaint from a union member, will not be required to take action in response to a third party’s concern. She will have the decision to do so. And the certification officer can conclude that she will take no action. That is why I do not believe that the arguments about the far right are relevant in this case.

In terms of the net budget that we have heard about, the £700,000, and where that money is coming from, that is the net budget, as I said. That is the money given by ACAS after accommodation, IT and a lot of the other fixed costs. It does equate currently to about £1 million; £1.15 million—that is the estimate according to our figures—is given to the certification officer, based on those current accounts. The certification officer can only charge for expenses incurred over a three-year period. Clearly, there are tests that are required, as it is a public authority, to ensure that she has sight of them at a reasonable level.

The right hon. Member for Warley talked about how the levy is calculated and who will be paying. The total levy, which is clearly needed to pay the expenses for the financial year, will be worked out by the certification officer. Approximately 50% of her time and functions relate to all organisations. That is covered in the basic levy. Small organisations will be exempt when the basic levy exceeds 2.5% of their annual income. The remaining 50% of the certification officer’s time is taken up by regulations that apply to non-federated trade unions. That will be divided out in the additional levy. The total shortfall in the amount collected by the basic and additional levies due to organisations that are exempt from paying will be divided equally among all higher-income organisations. That will support the enhanced levy. There are 21 employer associations and 40 non-federated trade unions that will be totally exempt from the levy, and 59 non-federated unions will be at that top level of the basic, categorised additional and enhanced levy.

We have talked about whether this is compliant with the European convention on human rights. Trade unions, as I have said, play an important role in our workplace and society. It is perfectly reasonable for the Government to legislate to ensure that they act democratically, transparently and within the rule of law. We are satisfied that regulation by the state, as set out in the Trade Union Act 2016, is entirely consistent with the ILO conventions and the European convention on human rights. This is not an attack on trade unions. This is not politicisation. No aspect of the decisions of the certification officer is subject to any pressure from a Minister of the Crown, and that will not change at all. This measure is simply modernising it.

My hon. Friend the Member for Wyre Forest asked what happens to the fines. They go into the Treasury’s consolidated fund. They do not subsidise the certification officer, and neither will she be able to profit from them. That will keep things on a level playing field and she will fine people based only on what is in front of her. This provides no temptation, albeit as a public authority she should clearly not be going down that road anyway.

It has been said that a higher evidential standard should be applied to the higher fines. Clearly, the burden of proof standards are lower than those applied in criminal investigations, but this is a civil action, so they equate and are comparable to other civil payments.

Accusations have been made comparing the £1.15 million to the fraud that was talked about in the other place yesterday. No fraudulent claims for bounce back loans have been written off. In fact, nearly £2.2 billion-worth of potentially fraudulent claims for bounce back loans were stopped and recovered just last year.

We have also talked about valuing workers organising. Clearly, we on the Government side value workers organising. Indeed, we valued that in December 2019, especially when workers in Stoke organised to vote in droves for two fine Conservative Members.

[Jessica Morden]

Why is it that the Minister is introducing these statutory instruments today but has not responded to the e-balloting review?

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[Paul Scully]

We are currently considering that review. In 2019, we were required by section 4 of the Trade Union Act 2016 to consult relevant organisations, including professionals from expert associations, to seek their advice and recommendations. We have done that and are now finalising our consideration of Sir Ken’s recommendations. We will issue our response later this year.

The Trade Union Act contains a significant safeguard that requires the certification officer to aim to ensure that the total amount levied over a three-year period does not exceed expenses. We continue to believe that that will ensure that the levy remains predictable. The reforms will bring the certification officer in line with the powers and funding arrangements of comparable regulators. It is not a tax; it is, as we have heard, a proportionate measure to bring it in line with other regulators and to ensure that the regulated organisations have a proportionate levy. Indeed, many of them, as I have outlined, will be exempted entirely. The certification officer has always gone about their duties in an independent and impartial way, and that will continue.

The Government believe that there is a strong public interest in appropriately regulated trade unions. These reforms are about modernising the certification officer, to ensure that she can continue to deliver her duties. I commend both sets of regulations to the Committee.

Question put.