House of Commons Trade and Industry Committee

UK Employment Regulation

Seventh Report of Session 2004–05

Volume II

Oral and written evidence

Ordered by The House of Commons to be printed 8 March 2005

HC 90-II (incorporating HC 1223-i, Session 2003-04) Published on 18 May 2005 by authority of the House of Commons London: The Stationery Office Limited £20.50

The Trade and Industry Committee

The Trade and Industry Committee is appointed by the House of Commons to examine the expenditure, administration, and policy of the Department of Trade and Industry.

Current membership Mr Martin O’Neill MP (Labour, Ochil) (Chairman) Mr Roger Berry MP (Labour, Kingswood) Richard Burden MP (Labour, Birmingham Northfield) Mr Michael Clapham MP (Labour, Barnsley West and Penistone) Mr Jonathan Djanogly MP (Conservative, Huntingdon) Mr Nigel Evans MP (Conservative, Ribble Valley) Mr Lindsay Hoyle MP (Labour, Chorley) Miss Julie Kirkbride MP (Conservative, Bromsgrove) Judy Mallaber MP (Labour, Amber Valley) Linda Perham MP (Labour, Ilford North) Sir Robert Smith MP (Liberal Democrat, West Aberdeenshire and Kincardine)

The following Member was also a member of the Committee for part of this inquiry:

Mr Andrew Lansley MP (Conservative, Cambridgeshire South)

Powers The committee is one of the departmental select committees, the powers of which are set out in House of Commons Standing Orders, principally in SO No 152. These are available on the Internet via www.parliament.uk.

Publications The Reports and evidence of the Committee are published by The Stationery Office by Order of the House. All publications of the Committee (including press notices) are on the Internet at www.parliament.uk/t&icom.

Committee staff The current staff of the Committee is Elizabeth Flood (Clerk), David Lees (Second Clerk), Philip Larkin (Committee Specialist), Grahame Allen (Inquiry Manager), Clare Genis (Committee Assistant) and Joanne Larcombe (Secretary).

Contacts All correspondence should be addressed to the Clerks of the Trade and Industry Committee, House of Commons, 7 Millbank, London SW1P 3JA. The telephone number for general enquiries is 020 7219 5777; the Committee’s email address is [email protected].

Witnesses

Tuesday 20 November 2004 Page

Mr Ian Brinkley, Mr Richard Exell and Ms Hannah Reed, Trades Union Congress Ev 1

Mr John Cridland and Mr Neil Bentley, Confederation of British Industry Ev 15

Tuesday 30 November 2003

Miss Emmeline Owens, Mr Lewis Sidnick and Mr Francis Toye, British Chambers of Commerce Ev 30

Mr Mike Emmott and Mrs Dianah Worman, Chartered Institute of Personnel and Development Ev 40

Mr Peter Schofield, Mr Stephen Radley and Mr David Yeandle, Engineering Employers’ Federation Ev 46

Mr Alan Tyrell QC and Mr Stephen Alambritis, Federation of Small Businesses Ev 51

Monday 20 December 2005

Mr Paddy Lillis, Mr Graham Markall and Ms Ruth Stoney, Union of Shop, Distributive and Allied Workers Ev 57

Tuesday 18 January 2005 (Morning)

Mr David Arkless, Manpower Ev 67

Mr Tony Dubbins, Mr Tony Burke, Mr Mike Griffiths and Professor Keith Ewing, Amicus, GPM Sector Ev 77

Tuesday 18 January 2005 (Afternoon)

Mr Nick Isles and Ms Alexandra Jones, The Work Foundation Ev 87

Mr Gerry Sutcliffe MP, Minister for Employment Relations, Competition and Consumers, Ms Janice Munday and Ms Beatrice Parrish, Department of Trade and Industry Ev 95

List of written evidence

Page

1 Amicus Ev 103 2 British Chambers of Commerce Ev 105 3 Chartered Institute of Personnel and Development Ev 110 4 Citizens Advice Ev 114 5 Confederation of British Industry Ev 119 6 Department of Trade and Industry Ev 122 7 Engineering Employers’ Federation Ev 139 8 Equal Opportunities Commission Ev 144 9 Federation of Small Businesses Ev 151 10 Graphical, Paper & Media Union Ev 155 11 National Group on Homeworking and UK Poverty Programme, Oxfam Ev 161 12 National Outsourcing Association Ev 162 13 Popularis Ltd Ev 166 14 Professional Contractors Group Limited Ev 170 15 Recruitment and Employment Confederation Ev 176 16 Small Business Council Ev 182 17 Trades Union Congress Ev 182

List of unprinted written evidence

Additional papers have been received from the following and have been reported to the House but to save printing costs they have not been printed and copies have been placed in the House of Commons Library where they may be inspected by Members. Other copies are in the Record Office, House of Lords and are available to the public for inspection. Requests for inspection should be addressed to the Record Office, House of Lords, London SW1A 0PW. (Tel 020 7219 3074). Hours of inspection are from 9:30am to 5:00pm on Mondays to Fridays.

Business in Sport and Leisure Ltd Chemical Industries Association Connect Midlands Engineering Industries Redeployment Group Limited (MEIRG) Unilever UK

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Trade and Industry Committee: Evidence Ev 1 Oral evidence

Taken before the Trade and Industry Committee

on Tuesday 2 November 2004

Members present:

Mr Martin O’Neill, in the Chair

Richard Burden Miss Julie Kirkbride Mr Michael Clapham Judy Mallaber Mr Nigel Evans Linda Perham Mr Lindsay Hoyle

Witnesses: Mr Ian Brinkley, Chief Economist, Mr Richard Exell, Senior Policy OYcer, Labour Markets, and Ms Hannah Reed, Employment Law; Trades Union Congress, examined.

Q1 Chairman: Good morning, Mr Brinkley. Perhaps Q3 Chairman: You used the expression “quality” of you could introduce your two colleagues. I am not work has improved. Is that just because it is full time sure if either of them have been before this permanent employment, or are there other Committee before, although I am sure they have dimensions to quality that you would maybe been before others. identify? Mr Brinkley: On my right is Richard Exell, who is Mr Brinkley: We have primarily looked at these the TUC expert on labour markets and labour quantitative measures, and what we have seen as market policy and he wrote the memorandum that is well as the shift between permanent and temporary before you so, if you like, it it is a collective eVort; if and full and part time are falls in the number of you do not like it, it is his fault! Hannah on my left people in part time jobs because they cannot get full is the TUC’s expert on employment law and time work, so there has been an increase in the share employment regulation. That is our team this of people who are in part time and temporary jobs morning. because they want to be in them, rather than because they have no choice but to accept those jobs, and that we think is some indication that the quality of employment has improved. It is much harder to get Q2 Chairman: Thank you. Maybe we could start oV qualitative judgments about whether employment in with a general “softening-up” question, if I can put general has increased, and I think on the evidence on it that way. After, what, nearly seven and half, eight that we have rather greater concerns. Some of the years of a Labour government, how would you survey evidence suggests that people feel less assess the Government’s broad approach towards satisfied with work than they did 10 years ago, and the labour market, either in terms of its flexibility or there is some indication, particularly in working its inflexibility with the degree of regulation? In time, where progress has been very poor indeed. So general terms, how would you assess that? on some of these other indicators the debate on the Mr Brinkley: I would say generally it has probably quality of work is much more mixed, but in terms of moved us a bit closer to the combination of quantity it has undoubtedly been a successful flexibility and security that we see in some other approach. European economies. It has actually increased regulation in the labour market. We have a minimum wage for the first time, we have increased Q4 Chairman: Finally from me, you made the point the strength of employment protection rights, trade about part time working and obviously there is the unions have a right to recognition and we have growth of the supermarkets and 365 days a year increased the protection of maternity and paternity almost employment, 24 hours a day. In some leave, so in many ways we have moved a bit closer respects you have opposed that. On Sunday opening towards what we call the European social model, or I remember long valiant campaigns led by USDAW a variant of it. In doing so it has been pretty and others, but in retrospect do you think things like successful. Not only have we seen a lot of jobs that may be a kind of a Canute-like approach to created but also the quality of those jobs has gone labour market flexibility? up, so job creation over the last five or six years, Mr Brinkley: Historically it was undoubtedly largely permanent, a lot of full time jobs, a decrease opposed, I am not sure with overwhelming support in the number of people in jobs that they do not want from rest of the trade union movement, but certainly to do. So generally speaking it has been a successful our shop workers did oppose that. I think the view combination of strengthening regulation, bringing nowadays is more to emphasise the importance of us closer to Europe, and a lot of good outcomes in making sure that people are not forced to work terms of the labour market. antisocial hours if they do not want to, and that 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Trades Union Congress when they do they are compensated in a diVerent Q6 Miss Kirkbride: That might be to their cost, of way, with additional payments and so on, so I think course, eventually, but that is another thing. Can we the whole debate has shifted in the trade union just be clear what you were saying about the movement. The whole question about whether 24 economically inactive? Were you basically talking hour working has really increased by a huge amount about incapacity benefit recipients who have gone is much more diYcult to imagine, because in the past through the roof in the last seven years? Who are the large manufacturing plants and industries like those people you are talking about as being steel and coal worked 24 hours anyway, but it was economically inactive? much less visible. It was largely manual workers Mr Brinkley: The two large groups are lone parents, working in the big factories whereas now you have where the UK historically has not had a good record banks and supermarkets and all the rest open 24 in terms of getting them into the labour market, and hours, and it is much more visible and clearer to the other group is predominantly older workers, people. So the shift may not be quite as radical as we many men, who are on long-term sickness and think in terms of the shares of the workforce, but disability benefit. We saw a huge rise of these there are undoubtedly diVerent bits of the workforce between the early and the mid-90s. which are now working 24 hours compared to the past. Q7Miss Kirkbride: And you have seen a bigger rise since on the latter? Incapacity benefits claims have gone up quite significantly. Lone parents you are Q5 Miss Kirkbride: I am curious why you wish to right about but incapacity benefits have gone up a move towards the European social model when it great deal more. seems to have delivered quite high unemployment in Mr Brinkley: The measure we are concerned with is Germany and pretty high unemployment in France not the numbers on the incapacity benefit; it is the and we have been very successful. Why should that numbers who say they want a job who are in this be a model you aspire to? area, and the numbers who say they want a job have Mr Brinkley: Unemployment varies a lot across stabilised since 1997. It has gone down a bit but not Europe. There is not a European unemployment by a great deal. So we have stopped the problem problem. A number of European countries— getting any worse, but we have not been successful Denmark, Netherlands, Austria, Portugal, Sweden yet in reversing it. —have all achieved very low unemployment rates Mr Exell: Also the number of people receiving compared to our own so the fact we have some incapacity benefit has gone down steadily since 1997 European countries with high unemployment and and so has the proportion of the working age others with low suggests you can have diVerent population on incapacity benefit. Go to the DWP variations of the European social model to suit website and look at the quarterly statistics for national needs and national circumstances. It is also incapacity benefit. worth making the point in the United Kingdom that Miss Kirkbride: There we are. unemployment is very much like an iceberg. The open unemployment we see is only part of our Q8 Mr Evans: On Judy’s point, are you at all problem, measured by the international statistics. concerned about the number of economically What we have compared to most other European inactive people who may not be seeking jobs but they countries is this huge problem of inactive people of just do not see the labour market here as being working age who say they want a job, and that is attractive enough for them to get oV benefits and get vastly higher here than in Germany or France, and V into work? It damages business, does it not, the fact once you take that into account the di erences that we have some skill shortages in this country and between the United Kingdom and these other we have not got people to fill them. We have to go European economies narrows significantly. So I abroad to get workers in, to get plumbers and think in terms of looking at the total demand for goodness knows what these days, and there is a V work, the di erence between ourselves and Europe whole host of inactive people out there who are not is much less stark than you would get by just looking interested in getting into the labour market. at the unemployment problem alone. Mr Brinkley: There is always going to be some but a Mr Exell: It is also worth noting that in Germany the lot of these people will not be receiving any benefits unemployment problem is very much concentrated at all, and they do not want to participate in the in the eastern laender rather than the west, so there active labour market perhaps because they are is the continuing problem of the inheritance from looking after children or perhaps they have some communism there. There is also a forthcoming very long term illness, so I would not necessarily say report called the Kok report which is about the that we have a lot of workshy people who are not future of the Lisbon process, and we understand that struggling to get into the labour market. I think in the Kok report is very likely indeed to recommend terms of policy it is much easier to start with the very the maintenance of the European social model, the large numbers who say they want a job and get those combination of flexibility and security that into the labour market as your first priority, because European states have traditionally tried to achieve, at least there you are cutting into the grain of both so certainly at the level of policy-making there is not human nature and the fact that people are giving you an impression of Europe pulling back from the a clear signal that they want to get into the labour European social model at all. In fact, they are market and therefore are much easier to help renewing their commitment to it. through the various agencies. So in terms of policy 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

Trade and Industry Committee: Evidence Ev 3

2 November 2004 Trades Union Congress priority that is my starting point. You always start up as areas for further action are, for example, some with the things you can do, the easiest, and I think of the regulation and administrative burdens about that is where I would centre policy to start with. actually starting a small firm or a new firm. That is not really a problem for us; it is perhaps a problem Q9 Miss Kirkbride: When answering my question I more for the rest of Europe, but I think it is was struck by the fact that you compared us with the important to bear in mind that the European social smaller countries in Europe and it is easier to work model and the regulatory environment is constantly with employment policies in smaller countries than evolving; it is never fixed and never should be fixed, larger countries, and normally when we do compare and I think it is having that sense of dynamic ourselves we compare ourselves with the big adjustment to competitive pressure all the time population countries where there clearly is a gap which is important, rather than saying, “You have to between our unemployment figures and the French move rigidly towards either deregulation or, even and Germans, etc, but what assessment have you further, tighter regulation”. made of America who, historically, have always Mr Exell: In this country it is also worth been much more successful at job creation than the emphasising there is a tendency to use the Lisbon European continent, and I wonder what your view agenda as shorthand for deregulation. That is not might be, taking to it the opposite end rather than what it is about. The Lisbon agenda is explicitly the European social model, on the success America about social inclusion and environmental has had with her economy? sustainability as well as economic competitiveness, Mr Brinkley: I think America has been quite and it is explicitly based on a social partnership interesting looking at the last four or five years, and model. the gap between the labour market performance in America and the labour market performance in Europe has narrowed. There are some very Q12 Mr Clapham: Mr Exell, a short while ago you interesting figures in the Kok report in one of the referred to flexibility and security which is embraced annexes which compares the performance between in this term “flexicurity”. Could you say a little bit 1999 and 2003, and there it shows the more about that and how necessary it is really to unemployment rate in Europe going up and in stimulate and to ensure the continuity and America going down. So I think the old view that sustainability of labour markets? America has had this unassailable lead in labour market performance has not been borne out by Mr Exell: Yes. We are looking for a labour market recent experience. Secondly, America also has this model in which flexibility and competitiveness are problem of inactivity amongst its working age not the enemies of security but are mutually population, particularly amongst the unskilled, reinforcing. That is particularly relevant to the amongst black workers, amongst those in the poorer British case because, if you look at the problems we parts of America which have suVered from a have for our economy as a whole, as described deindustrialisation, so in many ways America has for instance in the Porter report, what we have similar problems in its labour market to us, and is an economy where we are still competing certainly their historic record of employment growth overwhelmingly on the basis of cost in a world in has not helped them overcome these central which technological change and competitive problems. pressures are making that less and less sustainable. We need to move from a low road to a high road in Q10 Miss Kirkbride: So Tony Blair is wrong to push our business strategy. Now, the high road approach the Lisbon agenda? in which you invest in your workers, in which you Mr Brinkley: I do not quite follow. train them, in which you involve them in decision- making, relies upon security. People are not willing to make the level of commitment to the firm that is Q11 Miss Kirkbride: Because Tony Blair tells the required for a high road model in an insecure British public that the Lisbon agenda is about economy, so we need to combine flexibility and freeing up markets and making Europe more V V competitive, and deregulation, and you are saying, security. Now, di erent countries have di erent “Well, that is completely the wrong direction to go ways of going about this. We are not saying, and I in because what we have been doing so far has been have to make this absolutely plain, “Just copy what remarkably successful.” they do in Denmark or the Netherlands and V Mr Brinkley: I certainly think you need to change everything will be okay”. Britain is a di erent regulation over time. It would be foolish to think country: we have to find our own route to it. But that the regulation regime in place 20 years ago is nonetheless the Danish and Dutch comparisons are going to be still relevant today, so you constantly really quite instructive. They have managed to need to revise, review and reform regulation, and in combine generous benefit systems with growth rates some areas you may be able to get rid of it to change and productivity rates that surpass Britain’s, so it is to new circumstances and, broadly speaking, certainly possible; the question is “Can we manage a Europe has moved I think quite significantly in British equivalent of that”, and we think that we can. terms of deregulating product markets, so a lot of That is a matter of intelligent product and labour the old protectionist tariVs and barriers to trade market regulation combined with investment in have now largely gone within Europe. Some of the skills. They are the two really important keystones areas which the Kok Commission report has flagged for this. But also with the level of the firm it will 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

Ev 4 Trade and Industry Committee: Evidence

2 November 2004 Trades Union Congress need work organisation reforms, it will need we would give firms a strong incentive to raise their investment—this is about changing a system, so you game; and for the country as a whole, that shift up have to operate at each point of the system. to the higher road is a really important precondition for future success. Q13 Mr Clapham: Looking at the British labour market at the present time, are there any sectors Q16 Linda Perham: So what is your solution to the where you can see that peculiarly British approach productivity gap? developing? Mr Exell: Now, there is a question that we could Mr Exell: Interestingly enough in some ways the take the whole morning answering! When we and the public sector is showing signs of this. I think the CBI looked at productivity a couple of years ago for public sector forum is an indicator of the way the Chancellor we looked at four areas: innovation, forward. There are certainly far more attempts to skills, investment and best practice, and we need involve staV in decision-making than there were action in all those areas. The government has some years ago, and there has been a significant already taken some important steps such as, for investment in skills in the public sector, so there I instance, the R&D tax credit which was one of the think you could see some of the first stirrings of it. major recommendations we had on that. We still Also, across the economy we have had some need to improve our game on skills. The long tail of elements of the institution building that we want to low-skilled workers in this country is one of the main see, because if you want to create an environment in reasons for low productivity and one of the main which the high road business model becomes easier reasons for high inequality, so once again the points to follow you need the right institutions for it, and in we are making about a fair society being a more particular we have seen as well as the creation of the eYcient society link in here. If we are tackling both Public Sector Forum we have seen the Low Pay we have to address the skills agenda. We also need Commission, we have seen the Pensions to be promoting best practice, and DTI is already Commission. The diYculty we have is that at the doing quite a bit on that and the recent reforms on moment this institution building tends to be ad hoc best practice should help. We do have historically and uncoordinated and we strongly believe that low levels of investment in this country but there need to be broader forums—if that is the right unfortunately, if you look at some comparisons of word—for discussing national economic policy and matched samples where people have been working prospects. We have got the Monetary Policy with the same equipment in Britain and in other Committee, for instance, but at the moment none of European countries, we are still getting lower levels the forums we have involves the social partners of productivity when using the same equipment, so properly, so we are not getting the national debate obviously capital investment cannot be the whole about the way forward for Britain that we feel we story. Once again skills is part of the issue, but also need. there is a work organisation issue here. If you look at the typical German Mittelstand company, they Q14 Mr Clapham: Given what you have said and the have a lot of middle-skilled workers trained to a high explanation that you have given, then, you would level, and they are able to rely very often on leaving say that flexicurity embraces a kind of greater them to get on with the job and doing it, whereas in security for the workers. It is not entirely Britain, because we have not invested in middle level reregulation, though one would want to see some skills to the same extent and also because we have regulation, but it does not run counter to your this command and control tradition, we are not able advocacy of a kind of anti-flexibility policy, because to get the same level of productivity out of workers. you are saying ‘flexibility with security’. That is the The Americans get round this issue by throwing kind of framework you want? graduates at the problem, so they have high levels of Mr Exell: Yes. investment in the management of unskilled people which is their typical way of getting round the Q15 Linda Perham: I think, Mr Exell, you argue in problem. So you have a continental approach of your evidence against the assumption of a link having low-skilled production workers and an between greater flexibility and greater productivity. American approach of having investment in If that is the case, do you think that greater management. We have tended to fall between the regulation would improve productivity? two stools and not have either, which really is a Mr Exell: What we are saying is that flexibility is a weakness for the future, and we think that an multi-faceted thing. There are diVerent types of importation of the European social model into flexibility. Some types undoubtedly are linked to Britain would be to invest in the skills of people at the bottom end of the range because that is the key improved performance, for instance, greater task V flexibility within companies. What we are saying, to getting fairness plus e ectiveness. though, is that equally some types of flexibility just give permission for a low road approach. For Q17Chairman: Where do you see the trade unions instance, if you allow employers to have a hire and coming into this? Is it as a kind of policy forum? Is fire approach to their employees, that makes it easier it spectators in the wings cheering on the people to to compete on the basis of cost, it makes it easier for greater eVorts? You have not really, as it were, companies to survive simply by constantly trying to institutionalised, if I can put it that way, the role of screw higher production out of their workforce, trade unions in this new agenda. Where do you, or whereas if we regulated to stop that type of flexibility your members, fit into this? 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

Trade and Industry Committee: Evidence Ev 5

2 November 2004 Trades Union Congress

Mr Exell: We say that collective bargaining and those two approaches: one which was social social partnership are the biggest missing partnership based, the other driven eVectively by institutions that we have. When I was saying we need DTI lawyers, is quite instructive. If you get the social an institutional environment that promotes the high partners actively involved both in designing and road approach to competitiveness, unions are the implementing regulation you will get a better result big missing institution in that picture. We have lots because these are the people who have to live with of evidence that firms are more likely to invest in the results and know exactly what you have to do to skills when they have a recognised trade union; that get something that is workable in the workplace they are more likely to invest in health and safety rather than something that satisfies some of the when they have a recognised trade union; they are legal niceties. more likely to innovate when they have a recognised trade union—at the very least firms are more likely Q19 Richard Burden: Do you think that sort of thing to involve their workers in decision-making when could happen regionally? they have a recognised trade union. Now, that is Mr Brinkley: I can see no reason why it should not. putting it at its absolute mildest. There is one study We think the regional development agencies have which said that firms consulted their workforce only been a bit of a success story precisely because they when they had a recognised trade union, so we think have tried to replicate some of that thinking and that we have the potential to contribute a great deal approach in the work that they have done. They and this is a common feature of the European social need to build on that but I cannot see any reason model in other countries. Now, it works in diVerent why we should not see an equally good success story ways. For instance, one reason why Denmark at the regional level. always comes down towards the bottom of these tables of how regulated a labour market is, is simply Q20 Mr Evans: You have just surprised me a bit because in Denmark they hand everything over to there by saying something I did not expect to hear the unions. They have a highly unionised economy, from you which is that there are rules and very high levels of collective bargaining coverage, regulations within industry that do not help and so they do not need so much in the way of anybody and, indeed, hamper industry and should legislation because the unions are doing it all for the be got rid of. Why do I not associate the TUC with economy in any case. In other countries you have trying to roll back some of these useless regulations Germany’s tradition of tripartism; you have Spain’s that are dogging industry at the moment? new social pact which is looking for a way out of Mr Brinkley: The problem with the Working Time Spain’s traditional problems—so it is certainly Directive is that because of the opt-out, because of possible for us to find a way forward that builds on its weakness, it does not do the job it is supposed to our traditions; we might well see a collective do, which was reduce the long hour culture— bargaining structure that was more decentralised than in other countries if we were having a British Q21 Mr Evans: You have reassured me now you model, and we would certainly like to see it linked to have gone back on to “We need stiVer regulations”! the decentralised governmental institutions, so we Mr Brinkley: No, no. The reason why it does not would like to see unions and employers working work is because it has been made too weak. Its with the regional development agencies, for objective was to reduce long hour working in the instance, and the local authorities to promote economy, and it has not succeeded in doing that. Yet economic development. We think there is a very you have this bureaucracy there for a regulation important potential role for unions, and we stand which is now so weak that people still fill in forms all eager to play our part! the time and sign the opt-out, yet it is still not achieving what it was supposed to do, and that is Q18 Richard Burden: Just picking up on your last why it is not really pleasing anyone, to be honest. point, are there any examples of best practice of that kind of thing happening that you would want to Q22 Mr Evans: Better do away with it then? point us to as things that could create that kind of Mr Brinkley: Well, if you get rid of it you are culture you are talking about in the United condemning the United Kingdom workforce to Kingdom? working these very long hours compared to the rest Mr Brinkley: I think one example of institution of Europe. You are not tackling the central building is really the workings of the Low Pay problem— Commission which has both trade unions and employers active in it. It has been a huge success Q23 Mr Evans: But you also know there are a lot of story as an example of a regulation that has been workers out there who want to work longer hours to introduced at very little adverse cost to both the earn more money to make provision for their employers and the economy yet has done a lot for families. low paid workers. You contrast that with, say, Mr Brinkley: Well, the experience we have is that is working time which seems to have pleased a small minority. A much larger number say they absolutely no one and has not achieved very much. would rather work shorter hours, and where trade So we have this bureaucracy, which firms have to union negotiated agreements have been brought in, comply with, which has undoubtedly helped make particularly in the transport sector, we have seen lawyers rather rich but has done no good in the substantial reductions in working hours without loss labour market, and I think the contrast between of pay simply because firms have had to reorganise 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

Ev 6 Trade and Industry Committee: Evidence

2 November 2004 Trades Union Congress their workforce and reorganise the way they do evidence we have, that we are going to need what the business in a more eYcient manner. So the transport Americans call ‘post placement’ support. One of the sector shows it can be done through negotiation, and key points here that we would say from a trade union we would certainly like to see that approach widened point of view is that you need to work carefully with out to other industries. employers, you need to understand what employers’ Chairman: We will probably come back to this in a needs are, because the only people that the minute. employers are going to allow into the workplace are services that they can see are going to be Q24 Judy Mallaber: How do you respond to the contributing to the goals of being in business as a argument that greater regulation benefits those who whole. So we are going to need post placement do not particularly need it but deters employers from services that are sympathetic to the needs of recruiting lower skilled, unskilled workers, other employers and designed in consultation with people who have disadvantages of various kinds? employers, and that needs to be there for the long Mr Exell: I think perhaps the best answer to that is term. We have good reason for believing that what what has happened since 1997 when, as we were you have with many of the people who are in what saying, we have had a partial reregulation of the the Treasury identified five years ago as the “low labour market in this country. If you look at the pay/no pay cycle”—whereby people get a job, they employment rates of disadvantaged groups: over keep it for a few months and they are unemployed 50s—the employment rate has gone up from 64.7% for a couple of years, get another job for a few to 70.2%; ethnic minorities from 54.8% to 59.4%; months, are unemployed for a few years again—the lone parents gone up from 45.3 to 54%; disabled reason why many of them get into that cycle is because of the other problems they have which make people from 43 to 50.1%. For the lowest qualified Y their employment rate has gone down but there we it really di cult for them to hold on to their jobs in do think that there is a problem about the decreasing some cases and, in other cases, because the only jobs demand for unskilled labour. For most they can get are inherently insecure ones, so what disadvantaged groups partial reregulation of the you need is services that are staying with them after labour market has been accompanied by a they have got into those jobs, first of all to help them narrowing of the employment gap as compared with with things like family crises, addiction problems, the rest of the population. This is one of those cases problems with housing and so on, or to help them to where I find, when we are talking to people on the use the job they have just got which is not very secure other side, they do tend to say, “Well, that is all very as the firm point for leaping up to a better job, which well in practice but what is your theory?”, and the is more secure. Now, what we are hoping is that, as theory here is that we have a sensible approach to the government gets more and more successful with reregulation which bears in mind the possibility that getting people into jobs—and Mr Blair said a couple badly designed regulations can cause problems. We of weeks ago that the Government is aiming to get are not, in principle, enthusiasts for labour market the employment rate up from 75–80%—as that regulation regardless of how it is designed, happens so the savings and the increased tax regardless of what eVect it is going to have. We are revenues that come from that can be used to provide enthusiasts for intelligent, well-designed labour extra investment in the post placement services that market regulation which, on the whole, is what we we want to see. At the moment they are a tiny have had so far. We want to see it go further; we proportion of United Kingdom active labour would like some more of it in some areas such as market programmes, and hopefully further ending the opt-out, but we are not against the economic success will mean that as a proportion of Government’s attempt to craft regulations that are spending they can be increased. going to have a positive eVect, and that is what we have seen so far. Q26 Judy Mallaber: One of the biggest areas where we do not utilise the potential skills of the workforce Q25 Judy Mallaber: Looking at some of those is amongst women who are limited to a very limited groups, the people you talked about earlier, the range of occupations, and yet again there is a inactive people who say they want a job, now there contradiction. To enhance the overall use of the may have been success in getting them to work but workforce you need to be able to give both men and how far is that to do with other areas of extra women opportunities to combine work and home, assistance that they clearly need, and how far is it to but at the same time you will often get employers do with the impact of employment reregulation? that say “It is not worth my employing a women Mr Exell: Yes. One of the big challenges that no one because she will go oV and get pregnant” or they will has really worked out is, firstly, how we get the most not invest in skilling her and moving her on to other disadvantaged into jobs and, secondly, how we keep areas of work. How do you deal with that dilemma? them there once they have the jobs and how we help Ms Reed: Interesting questions were raised when the them to progress once they have got into their jobs. Part time Worker Regulations were introduced back It is all very well to get people into a job, any job, in 2002. It was argued that, by introducing new though we are getting more success on that than we employment regulations providing more rights to have ever had before, but across the whole world no part time women workers in particular, fewer one has really cracked this issue about how we get employers would be interested in employing women. people to keep their jobs and to progress in them. It However, oYcial statistics demonstrate that since does seem very likely indeed, looking at what 2002 what we have actually seen is an increase of 7% 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Trades Union Congress of people entering the labour markets through part regulations are introduced, demand increases in the time employment. And women using these new case of part time workers, or relatively does not rights benefit not only from equal treatment in terms decrease faster in terms of fixed-term employees. of terms and conditions of employment but also are benefiting from new opportunities to access training Q28 Mr Evans: On the flexibility front, do you to enable them to create new career opportunities for recognise as well that there are some businesses that themselves and to move on to better quality jobs. are small but that simply could not participate in a There are similar arguments at the present time number of the things that you said would be taking place around the issue of agency workers and beneficial to them on flexibility? Do you recognise whether there should be regulation for agency that there is a size issue there? workers on the basis that many employers argue that Ms Reed: There are a variety of examples I think agency work oVers an attractive form of flexible drawn from the small business sector. I was recently employment for women in particular with caring at a conference with an employer from the Small responsibilities but also with men for caring Business Council, who said he has sat down with his responsibilities, and if we were to introduce whole workforce and talked about working time regulations in this area employers would reduce arrangements because he was heavily reliant upon their demand for agency workers. Now, the TUC women workers. That was his principal source of does not accept those arguments, partly because the employees, and he recognised the need to match the empirical evidence and surveys taken of employers needs of employees to balance their working time shows that the use of agency work within the United responsibilities and their family lives. That had been Kingdom is not based on a cost-based analysis for a very successful example. He said he was working in employers but on their need to achieve flexibility. a sector within a local area where it was very diYcult Also research carried out by the European to access the appropriate skilled members of staV. Commission at the present time shows that most He, unlike other small businesses operating in that agency workers across Europe in countries including area, had a number of people who were queuing up the United Kingdom have far fewer access to to work for him as an employer. There are other training opportunities than other forms of workers. examples of small businesses that have used job So often they will find themselves in very short-term share arrangements and other forms of flexible assignments with no investment for their employers working. Our encouragement would be to small in terms of enabling them to create new career businesses to sit down and talk with their staV, opportunities. They therefore get trapped into a ideally through elected representatives, to look at cycle of moving from one low-paid, low-skilled job what flexible systems and what flexible patterns of to another without really having the opportunity to work would work for their work place. We recognise advance within the labour market. So our argument both the needs of the employee and the employer or analysis of new equal treatment legislation that need to be met. But a collective conversation about we have seen since early in this century has benefitted these issues often comes out with sensible solutions. individuals who often operate at the margins of the labour market who are attracted to more flexible Q29 Mr Evans: You say elected representatives, but forms of work but who benefit from a system of there may be some small businesses that only employ regulation which enables them to access training. On two or three people, and for them to go down the a counterpoint we also believe that these bring route of flexibility may be much more diYcult. You benefits to employers because investment in a wider are pointing to one business example where it has range of workers raising the skill levels of more worked, but do you recognise as well that there will individuals who want flexible forms of work ensures be others where they simply are not able to benefit that the quality of the pool of workers that are from it because they have not got a pool of people available to employers will increase. Therefore the looking for part time work? choices and flexibility available to employers will Ms Reed: The smaller the organisation the more Y V increase. di cult it may be to use di erent forms of flexible employment. But small employers are the same as any size of employers and they need to be able to Q27Judy Mallaber: But how successful are you in retain skilled members of staV. And often they have persuading employers of that argument, that it is families and have family pressures. One of the key worth taking on that investment in those skills and findings from many empirical surveys is that training? employers who investigate and consider flexible Ms Reed: Well, certainly the evidence in terms of forms of work are more successful in retaining part time work and also the evidence of what has skilled members of staV, and therefore do not need happened to the temporary work sector—where to invest in training new members of staV that they again we have seen new regulations introduced for would have to recruit to replace these members of fixed-term workers—is that relatively in the staV who may leave because flexible working temporary sector there has not been a decline in patterns are not available. the use of people on fixed-term contracts since the introduction of the regulations. So while at the Q30 Mr Evans: On the general point of smaller present time the employers may argue that businesses, with all the rules and regulations that the the regulations will result in lower levels of demand TUC might like to roll out themselves as protection for these forms of workers, in practice when the for workers and all that sort of thing, do you 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Trades Union Congress recognise that there is any scope at all for having and stress and sickness at work. There is also a more flexible regulations for smaller businesses relationship between these very long hours and because they find it more diYcult to aVord to do workers making more errors when they are actually some of the things that the huge industries are able at work, which ultimately is going to impose a cost to aVord because they have personnel departments, on firms in terms of the reliability and the quality of whereas in smaller businesses the owner is the the services and the goods they are producing. So we personnel department? would see this as a productivity boosting measure Ms Reed: We recognise that the conditions which rather than a productivity decreasing measure. enable businesses to grow and to thrive often apply right across the board, and that would include fair treatment of members of staV. We are very Q33 Richard Burden: So what you are saying is that conscious that in many small businesses, moving away from a long hours culture would employment disputes have become a big issue. And improve productivity? the Government’s own statistics show that the small Mr Brinkley: It is our view that this would help. business sector gives rise to the largest proportion, or a disproportionate number, of employment Q34 Richard Burden: Do you see the removal of the tribunal claims, which suggests that employment opt-out as the same, because they are diVerent relations are not always as good within the small issues? There is an argument that says you could business sector as they might be. Our view would be come back with a long working hours culture and at that if small businesses, and many of them do this, the same time keep some kind of individual opt-out? adopt better practices and look at putting in place Mr Brinkley: The experience in the United Kingdom policies, and work with organisations such as ACAS does not suggest we would have to wait an awful and the Equal Opportunities Commission, not only long time for that to happen. Our calculations are would they help to resolve employment rights that we would take forty years at the present rate of disputes and retain quality skilled staV within their progress to get down to the European average of workforce but also, we would argue, become more people working more than 48 hours if you keep the competitive and productive in the future. status quo, so that is an option I do not think is really viable. I do not think you have any choice. Either Q31 Mr Evans: I recognise that last point but it you get rid of the opt-out or you retain the long might well be that in the very small businesses the hours culture, but I do not think you have a halfway owner is working so hard themselves to keep the house between the two. business going that sometimes they have not got the time or even the inclination. They lose the will to live, quite frankly, at the end of the day to sit down and Q35 Richard Burden: Why do you think generally then do the paperwork, a lot of which is rules and that businesses are opposed to removing the opt- regulations from government, and maybe that is out? There will be some that just think that if people where they fall foul sometimes of some employment can work all hours God sends then that is good for legislation because they have not got the time to keep productivity, and there will be some that say that, up with it. There is a whole mountain of but presumably there will be an awful lot more that paperwork there. will say “We do not agree with that, but still we think Ms Reed: Which is why we very much welcome the removal of the opt-out would be detrimental to us”. work the DTI is doing with ACAS at the present Why do you think they think that? time and with the Small Business Council to try and Mr Brinkley: I think there is a slightly nuanced ensure that the forms of advice and support response from business, perhaps rather more available for small business matches their needs. nuanced than is sometimes said. Those firms which And that they can have workplace visits from are actually working quite comfortably within the 48 experts who can help them with introducing basic hours do not care much one way or the other, but employment policies within the workplace. So we because it is not aVecting them they do not feel they recognise that small businesses do face challenges have to support it. There are others who perhaps are but we welcome the fact that the DTI is seeking to not aVected very much by the 48 hour one but are channel resources to assist them. just opposed to it in principle, and they do not like Mr Exell: It is worth recalling that the Kingston the idea of the government intervening in their University research for the DTI did find that particular work organisation issues, and then there complying with employment regulation was quite a is a disappointingly large number who do it because minor issue for most small businesses. it is the easy thing to do. It is firms taking the low road, which we referred to earlier, in that by going Q32 Richard Burden: Can we go back to the down the path of longer hours you can get by, you Working Time Directive? I am not entirely clear can survive, you can compete on that basis, but it is whether you are saying that removing the opt-out very much the easy option. It is not going down the would improve productivity or whether you are route of high investment and high productivity. If saying that removing the opt-out would have a long hours were really essential for improving detrimental eVect on productivity. business eYciency then the United Kingdom would Mr Brinkley: We think it would have a positive be up towards the top of the European league in eVect. There is clear evidence that there is a terms of workplace productivity, not at the bottom. relationship between these very long working hours Certainly if you look round Europe, they have 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Trades Union Congress clearly seen a reduction of the long hours culture that all Directives provide for a derogation for the there go hand in hand with very long high levels of implementation of the regulations at enterprise level work place productivity. or national level through collective bargaining.

Q36 Richard Burden: I am not trying to take up the Q39 Mr Evans: So you are not opposed to a issue of long hours culture and I accept your views derogation? that if you give any concessions on an opt-out you Ms Reed: Well, our view is in the context of working encourage that, but let me put to you an example time but also in the context of other forms of V that I have had put to me. I work quite closely in the regulation that collective bargaining o ers the most motor industry particularly with the performance sensible way forward to ensure that the minimum engineering motor sport industry, they have lobbied standards which are set out in the legislation are saying “The area we are involved with is in getting introduced in a way which meets the needs of the cars ready to race on a weekend, and if you have not workforce of the particular enterprise but also the got the car ready it does not mean the race does not needs of the employer. That does not mean we are start you just have to do it, and if that means talking about a diminution from the minimum working through the night before that is what you standards or any derogation from those minimum have to do”, and I am not talking about the very standards, but introduce the standards in a way that wealthy teams here but right down to the small firm is flexible. And working time is probably the best that produces widgets that go into a bit that goes example of that where we have an individual right to into a bit that is needed at the weekend. Now, what request to work flexibly which we would suggest they are saying is not that they want a long hours maybe is not the best way forward to try and culture, but that there will be times where people will reorganise working patterns to meet the needs both have to work incredibly long hours, and they do not of employers and individuals. We want to retain that have a problem, they say, in terms of coming to a individual right but we believe the aims of that voluntary agreement with their employees about individual right can be best achieved through a collective route, through social partnership within doing that, but they have a problem with codifying organisations. And our Changing Lives project that in a way that can meet a whole lot of forms to shows examples of where trade unions have worked be filled in at the end of the year or the end of the very successfully to match both the employer’s month. Do you recognise that as being a potential operational needs and also the workforce’s needs in problem in that example or perhaps in other terms of caring responsibilities, and also requests for examples in the motoring industry, or elsewhere? career breaks and other forms of flexible working The entertainment industry? patterns. Mr Brinkley: If they can get to a voluntary Mr Exell: In the Changing Lives project—which the agreement, the question is why have not they done it TUC was one of the sponsors of—there was a very already? Why have not they moved to a more interesting experiment in Bristol libraries, for flexible system? instance, where working together the council was able to combine oVering flexibility for staV with Q37Mr Evans: Some would say they have done it caring responsibilities with opening up the library at already, that they would not be able to carry on times at the weekend and in the evenings, for doing it if the opt-out is removed, because you could instance, when it had not previously been available not come to a voluntary agreement and have an opt- for local citizens. One of the reasons why we support out. That is what they are saying? social partnership is we think that you need Mr Brinkley: In our view the opt-out and the regulations to set up basic standards but, if you want regulations contain quite a lot of flexibility inside to apply things in the context of a workplace without a heavy-handed approach, something that meets the them. It does not say you cannot work more than 48 V hours over a weekend if you are going to get ready needs of the people that are going to be a ected by it, then unions and employers who know the for a race; it says you cannot work more than 48 company that they are talking about are best placed hours consistently over a long reference period. to do that. For instance, when the Parental Leave Directive came out there was provision in that that Q38 Mr Evans: In terms of the model of social we took up saying “We would like to see this partnership that you are talking about, you do not Directive implemented on a social partnership basis want to have in a sense regulation for the sake of it, with government, unions and employers coming and if it can be done by some kind of social together to try and work out how best to apply this partnership model on the ground whereby, perhaps in the United Kingdom.” Unfortunately we were the through representative unions and in other cases only people saying that, so it was not implemented not, employees and employers are agreeing a fair in that way, but we are certainly willing to take up system of regulation for themselves, how could that our role to promote flexibility. be developed in the United Kingdom alongside a removal of opt-out which it could be said would Q40 Richard Burden: One further question: you say, prevent them doing that? and I cannot remember where, that you reckon that Ms Reed: In some ways that option is already the DTI have overestimated the negative eVects of available to us, not only in the Working Time removing the opt-out. 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Mr Brinkley: We have looked at the Labour Force there are diYculties for unions as well as gains, but I Survey, which is the source of most of these figures, would say, by and large, where collective bargaining and where we think that the DTI has over- influences the outcome, then you have got working interpreted the results from that survey, is that they arrangements that look fairly sensible and certainly have assumed that everyone who says their those firms, I think, would cope very easily with contracted hours are more than 48 hours are being moving towards the end of the opt-out. paid for that, and that is not what the survey tells you. All it tells you is that these hours are contracted; Q43 Chairman: it does not tell you whether you are being paid or The position of trade unions in the unpaid for them, and our estimate is looking at—I construction industry is somewhat weaker than it think a more reasonable interpretation of the used to be, is it not? question—which is that the number of people Mr Brinkley: Yes. working beyond 48 hours contracted and paid is much less than the DTI is suggesting. So the Q44 Chairman: Whereas in printing it is still pretty potential diYculty you have of going down to the 48- well-organised. Union organisation does not seem hour limit is therefore a lot less than they are to be the factor there, or is it just small printing suggesting. businesses have a diVerence in culture? Mr Brinkley: I sometimes think printing is almost a Q41 Chairman: Can you tell us, on this issue, what unique culture industry in certain respects. There are your experience is of European adherence to the not too many parallels, I think, we would want to Working Time Directive? One of the problems that draw across from it. is often suggested about the British interpretation of European regulation is that in the first instance it Q45 Chairman: That has been my experience as well. should be adhered to whereas it seems in some Mr Brinkley: I would say printing is the one we have countries that there is more a cultural voluntarism, most in mind when we are talking about the if I can put it as discreetly as that! diYculties trade unions will have, in some areas, Y Mr Brinkley: This is often di cult to actually pin convincing their own members to be sensible and down, exactly how rigorous our European plan to reduce their own working hours. But, as I competitors are in enforcing or implementing say, generally we see collective bargaining and European regulation or legislation. I would say in collective bargaining arrangements as helping most countries the Working Time Directive has not companies cope with the directive quite easily. been regarded as a very big deal either way, because in most of these countries the national framework, the national legislation, is already setting working Q46 Chairman: So, set aside printing for the hours well below the 48-hour limit; so for most purposes of the discussion, what you are saying is countries this really was not a big deal. Certainly in that you want the Working Time Directive to be the UK—and to some extent Ireland—where this introduced in order to protect what are was seen as a major change in the way the labour predominantly non-unionised and non-organised market was regulated, we are the ones that tended to sections of the labour market? have the biggest problems with it. As I say, in that Mr Brinkley: That would have a major eVect on particular instance, I can see why most other that, and also have a major eVect on some of the European countries would not see this as a major non-manual workers, particularly professional problem. I suspect we may have more problems, less managerial workers, some of which are organised on on the labour market, more on product regulation the public sector, but a lot are not. So we are areas, and certainly there are some examples, I approaching this not so much because we think this think, where you might say that implementation of is going to get huge gains for union members in some of the directives in this country has been particular, but because it will give huge gains to the probably a bit over-enthusiastic, compared to those workforce in general, and that has been our elsewhere. approach on regulation, really across the board. If you look at the national minimum wage, hardly any union members get that, and quite right too, Q42 Chairman: Have you made any assessment otherwise unions would not be doing their job, but within the membership of the TUC, or the unions, we still think that is a very important labour market and the areas where the unions are negotiating? To regulation because it primarily increases the wages what extent would the Working Time Directive be of the most vulnerable in the workforce. unnecessary, because by negotiation and by custom and practice the hours have been less than 48? Mr Brinkley: By and large where union negotiations Q47Chairman: It also has the advantage of raising and agreements are in place, firms are pretty close to the level of the water for all the other boats as well, complying with the directive anyway, particularly in does it not? If you raise the national minimum wage, engineering and areas such as retailing, and so on. everything goes up? That is not a huge problem. There are greater Mr Brinkley: It has not up to now. It may now be diYculties, I think, in some particular industries, starting to. The minimum wage has finally got up to notably printing, where there is a tradition of long a level where we think it may be having some impact hour working and in areas such as construction, on wage rates above. I think what has been striking which again has a tradition of long hour working. So so far is the lack of knock-on eVects actually. 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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Q48 Mr Evans: Why is the TUC so in favour of the agency to do the filtering, to do the interviewing, the job destroying Temporary Agency Workers to make sure they are selecting people with the right Directive? skills. That is basically what they are paying them Mr Brinkley: We certainly do not think it job their fee for. destroying. The two European countries where temporary work is probably the most developed, at least in terms of agency work, are France and the Q51 Chairman: But are we not maybe putting apples Netherlands. The Netherlands, in particular, has a and oranges together in the same bag here in the huge agency labour market, and they have done it sense that for low-wage, relatively low-skilled against a background of pretty strong employment employment in some respects the agencies just do the regulations. I do not think the evidence really dirty work for the management; but what about that supports the idea that regulating agency workers is sector of the economy where it is high-wage, high- somehow going to decrease their use in the economy. skilled, individualised working, where it is as much for the convenience of the individual worker. I am thinking of IT or some of the design functions of Q49 Mr Evans: The CBI certainly does and the engineering and things like that, where people are Chartered Institute of Personnel and Development. literally parachuted into a job for a period of time They both say that it is going to make Britain less and these folks do not want to work 12 months of the attractive for inward investment, it is going to make year; they do not need to. Are we perhaps lumping companies that would otherwise use temps decide them in with the university student who needs a job that they are not going to do so because of all the in a call centre and goes along in early June says, extra red tape and the extra cost that is involved in “Give us a job”, sort of thing, and they get one until the whole thing; and a number of workers that get September, or the mum who just needs a temporary into the labour market in the first place via agency job, and the agency is the place to do it, although jobs are not going even to get that. I do not know if quite often the result is both of them get exploited the general idea is to try and make Britain less but the others do not. Are we maybe not confusing competitive in this area. Is this what you want? diVerent bits of the labour market under the Mr Brinkley: Let’s take these three arguments one umbrella of temporary working? by one. Inward investment: I think it is extremely Ms Reed: Looking at the proposed regulations on unlikely that a huge multinational company coming agency workers, there is no reason to presume, it is in in a high value-added service or a high value- certainly not our conclusion, that the regulations added good is going to be concerned about the will impact in any way upon the high-skilled, high- regulation of temps. These are companies which paid sector of the agency workers regulations, of the operate in labour markets throughout the world, agency sector. Partly because the rights to equal including those in Europe, and their decision is treatment contained within the agency sector only going to be based on other things than what—to give the agency worker the right to parity with user them—is really a very minor measure. Secondly, will members of staV; the right to equal treatment does this actually reduce job opportunities? We do not not go the other way. So if a high-skilled worker has think so. Agency work obviously has a role to play been employed on a short-term assignment because in getting people into the labour market, but we do they oVer a particular skill; the new rights would not not see it as a major one or a decisive one. Thirdly, mean that the permanently employed members of companies by and large will go on employing staV would have the right to equal treatment with temporary labour for the reasons that they always that high-skilled member of staV. What the Agency have done: to provide cover for maternity leave, sick Worker Directive will do, however, is to provide a leave, to cope with the ups and downs in production, framework or a floor of rights for the low-skilled, and those overwhelming economic and industrial low-paid workers who often access the labour reasons will continue. We have no reason to think market through the agency sector. And the DTI’s that they will not go on employing temps to meet own regulatory assessment on the impact of the those sorts of demands simply because you have directive showed that the levels of pay inequality made what is, after all, a fair and modest change in faced particularly by low-paid workers within the the way agency work is regulated. agency sector is very high, in the region of £2–3,000 Mr Evans: We will ask the CBI shortly whether big a year, which we would recognise as being a major companies are not bothered by this particular sum of money for particularly low-paid workers. We revelation. are also concerned that many employers report, and, indeed, agencies report, that they have a problem in Q50 Chairman: In some respects would you say that recruiting enough agency workers to match the agencies are now assuming the HR function that employer’s demands. One of the reasons for this, we the personnel department in days of old used to believe, is that agency work is not an attractive fulfill? They take on the responsibility of hiring option because agency workers do not benefit from people, of agreeing a rate for them, and they do so most employment rights contained within UK because it is virtually subcontracted to them? employment law, including family friendly rights, Mr Brinkley: I think it is certainly true that the but also job security rights, unfair dismissal rights agencies are providing some sort of filter role for and rights to redundancy pay. And the employers. Employers go to agencies and will Government’s own statistics have shown that, of all specify they want a high standard of work in a forms of work, agency work is probably one of the particular job quite rapidly, and they are relying on least attractive within the labour market. Only 30% 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Trades Union Congress of agency workers would choose agency work over issues of unfair dismissal and redundancies is a permanent form of employment. We recognise because alongside debates taking place on the that in the changing labour market employers do Temporary Agency Workers Directive, the DTI is need more flexible forms of work, but let’s employ also carrying out its review on employment status, fair and attractive terms and conditions for those. which looks at those categories of workers who fall outside of UK employment legislation. Agency Q52 Chairman: I remember being lobbied a couple workers are probably the largest group of workers of years ago by the people who, as it were, employed who do not benefit from existing UK legislation. But the high flyers, or who recruit the high flyers, deploy the European Directive, that the question was them and then they leave. Are you telling me that the focused on, would provide only equal treatment fears they expressed to me then have now been rights in terms of pay, hours and holidays. The issue largely addressed and that they are not concerned in about employment status and access to unfair the way that once they might have been? Because I dismissal rights or redundancy pay is matter for get the impression talking to employers, as distinct debate within the UK and we await the long awaited from the agencies, that the message has not got response from the Government on employment through. status. Ms Reed: Our view is that that concern is misplaced because, provided those high-skilled workers receive Q55 Miss Kirkbride: Your view of that would be? at least the minimum standards that are provided for Ms Reed: The TUC’s view is that all workers, permanent staV within the organisation, the regardless of the nature of their employment regulations will not impact upon their deployment relationship, should have access to the same range of or use within the labour market. The aim of the employment rights. The reason for that is that— Agency Worker Directive, as with all employment regulations, is to provide a floor to ensure that the Q56 Miss Kirkbride: You are a temporary worker most vulnerable low-paid workers benefit from fair and you get redundancy pay. I do not get it! treatment in their work. Ms Reed: You only qualify for redundancy pay if you have been in the workplace for over two years, Q53 Chairman: I have no problem with that side of and most agency workers would never qualify for it. What I do have is a concern that has been that right. However, we are conscious that in some expressed to me and has yet to be properly addressed sectors, in manufacturing, and in the public sector, of this rather small, privileged, in fact, very fortunate agency workers were being employed on a much group of people who can, as I say, literally parachute longer term basis. These workers often have themselves into the labour market in well-paid significant responsibilities in terms of mortgage and employment and can only do so by the mechanism taking care of their families. We believe that it is of specialised agencies who deal with that. It is not unfair that those workers simply can be fired at the exploitation, it is mutual convenience, and usually will of the employer without needing to go through rather large sums on both sides, I have to say. I can any form of procedure or needing to pay redundancy see the temporary position, but I think that pay to those individuals; but the vast majority of somehow the message has not got through in the agency workers within the UK would not qualify for way that it should have done. We may have to call in those UK based job security rights such as unfair people like this to get their fears and anxieties, dismissal and redundancy pay because their because they are quite often the kinds of people assignment would not be long enough in the whose presence creates employment, has a cascade workplace to qualify them for those rights. eVect further down the line, and it is a bit like the work we have done with ECGD. The important Q57Miss Kirkbride: You say pay on the European thing is that we get the contracts, because then the directive, does that include a pension contribution supply chain comes into play at a later position. I or does that not form part of the pay? certainly am a little concerned about the somewhat Ms Reed: Our understanding of the definition of simplistic almost knee-jerk response that comes ‘pay’ is the same as equal pay as within EU law. from yourself; and we will be having the CBI in a However, there have been debates, or there were short while and we will have a look at their knees as back in 2002, as to whether the directive should well, in a professional sort of way! cover pensions or not. The TUC’s view on pensions is that occupational pensions should be covered by Q54 Miss Kirkbride: I just want to be clear about the directive— what the floor was. You mentioned when you were talking to the Chairman and also to Nigel about Q58 Miss Kirkbride: For temporary workers? redundancy pay. Does redundancy pay form part Ms Reed:—to protect those members of staV who of— are on very long-term assignments, particularly in Ms Reed: That does not form part of the Temporary the public sector but also in some forms of Agency Worker Directive. The Temporary Agency manufacturing. However, as with all equal Worker Directive would give agency workers equal treatment rights, there is an objective justification treatment on issues relating to pay, holidays, hours. defence for employers; and our view is that in the It would also, importantly, give agency workers vast majority of cases where agency workers are on the right to access training opportunities within short-term assignments employers will not need to organisations. The reason why I mentioned the give rights to agency workers to access occupational 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Trades Union Congress pension schemes because the equal treatment rights treatment in terms of holidays and hours and would not apply to them. That does not mean there therefore their comparison should be with the is a need to look at some form of pension provision worker that they are working alongside. for agency workers, who are often low-paid women workers, but that is a diVerent debate, a much wider debate. Q60 Judy Mallaber: Can I follow up on this? On temporary non-agency workers, one of the large groups that made representations to a previous Q59 Richard Burden: Could I return to the question committee I was on was the scandal about FE and the Chairman was asking before, because I received HE lecturers who are often on long-term, continuing similar representations a couple of years ago and one temporary contracts, and that is in the high-skilled of the areas of concern appeared to be some area where clearly, we were told, there would be confusion about whether the Temporary Agency some resolution of their position. I was surprised in Workers Directive was about regulating the the part of your evidence where you were giving the relationship between the agency worker and analysis of the labour market you slightly dismissed the agency or whether it was about regulating the home-working as not going to be the typical pattern relationship between the agency worker and the of the future, and yet there is a huge number of employment, the place in which they were working. home-workers, particularly, for example, in the Again, for those people who are genuinely poorly Midlands (where I am) in the textile sector, who are paid with poor conditions, and so on, that is less of quite highly exploited, and you do not seem to have an important distinction because they probably need made any reference to that in relation to protection both ends. For the high flyers, it might be employment status and regulation. Again, it will be a bit more of a complicated area about what it is we the argument that by giving them employment status are trying to regulate and which relationship we are and regulation you are going to take away from their trying to regulate. Has that come up with you, and ability to get work. I did not know if you wished to have you any idea of that kind of dilemma about comment on what representations you have made on which relationship we are regulating? the employment status review on home-workers? Ms Reed: The directive seeks to in some ways Ms Reed: Certainly our submission to the regulate both relationships, but not in a heavy- Committee argues that the Government should handed way. In terms of the relationship between revise the law on employment status, and we would the agency worker and the agency, the aim of the very much encourage you to look at the issue of directive is to identify the agency as being the employment status as part of your review. What we employer for the agency worker. We are very have said to the DTI and have lobbied the conscious in the UK that agency workers already do Government, is to change the definition of who qualify for certain basic employment rights, such as qualifies for employment rights to include all groups sex discrimination and race discrimination cases, of workers, and a key group not only is agency because those rights apply to all workers. However, workers but is also home-workers. You may well be many agency workers find it very diYcult to enforce aware of a recent case of Beverly Dew who was, or those rights because they do not know who to bring is, a T&G member and who has been supported by the legal claim against. Do they bring the legal claim the National Group of Home-workers. Beverly against the agency itself or do they bring the legal fought very hard to try and get improved national claim against the user employer? And the law on minimum wage rights, particularly in the regulations who is their employer is incredibly complicated, and on how piece rates are paid. She was the leading it changes from week to week—it changes according campaigner and, thanks to her campaigning, the to which employment tribunal happens to be sitting Government has listened to the plight of home- at the time. We believe that uncertainty is unhelpful workers and has changed the law in October. for both employers and for employees. So we However, what also happened to Beverly is that she welcome the directive, as it would make it clear that found that, when she stood up and asked her it is the agency who has the responsibility in terms of employer to pay her the national minimum wage, employment rights and in terms of regulating the her employer’s instant response was to stop employment relationship with the agency worker. supplying her with work. And this was even though Having said that, what the directive also does is to she had been employed by the same supplier for 14 recognise that, when we are talking about lack of years. She had received a very regular supply of work access to equal treatment for agency workers, the over that time, so the economic reality of the comparison needs to be made not between agency relationship was that there was a commitment from workers and agency worker but between the agency both the employer and from the home-worker to worker and the worker with whom they are working supply work and for the home-worker to do the alongside who is permanently employed by the user work. However, because the employer had employer. So in terms of establishing whether the consulted their employment lawyer and had recently agency worker is accessing equal treatment, they will changed the contract that the home-workers were look to the employee who is employed by the supplied on and had written in a clause within the permanent employer, by the hiring employer. The contract to say, “I have no legal responsibility to reason for that is to say we need to ensure that provide you with work”, even though in practice he agency workers are not exploited and do not receive had been supplying home-workers with work for lower rates of pay than is the going rate for the job over 14 years, because of that one legal clause within that they are doing, to ensure that they also get fair the contract, Bev Dew recently found when she went 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Trades Union Congress to the Employment Appeal Tribunal that defeated labour market can still cope with above average her right to claim protection from dismissal and, increases, but there is no way, other than testing it, indeed, protection from detriment when trying to to find out whether you are coming up against the enforce her national minimum wage rights. We are limit or not. So we think the Low Pay Commission’s very concerned that this legal loophole is enabling approach of recent years to put up the minimum employers to exploit workers and not to provide wage faster then average earnings is the correct one. them with fair treatment. And ultimately we believe We think £5.35 by October 2005 is an ambitious but that that is not necessarily good for the employer. manageable increase in the national minimum wage. We have been having a long discussion today about the need to move towards a high skilled, high productive workplace where all individuals are given Q64 Judy Mallaber: Are there any sectors you are opportunities to access training and skills, but the particularly concerned about or do those sectors just problem with the legal loophole in employment reorganise the working patterns to avoid the status often means that people working at the problem? margins of the work force are not treated with Mr Brinkley: So far they do seem to have coped with equality, are not considered to be of equal value by it pretty well. As I say, employment has gone up in employers and, therefore, lose out on training, skills all the lower paid industries. We have not seen an and often their full potential. impact on aggregate profitability, which has remained high in the service sectors where most of Q61 Chairman: Could you send us a note on that, the low paid industries are concentrated. We have please? Could you give us an additional note? seen an impact on investment, and it does appear Ms Reed: We would be very happy to do that. that productivity is now increasing faster in areas Chairman: I think it would be helpful. With no such as distribution or commercial hospitality than disrespect to your answer to Judy’s question, I think the rest of the economy. We cannot make a hard and it would be useful to get something in writing on fast link between that and the fact you have got a that, it would be helpful, and we might well canvas high minimum wage, but it certainly will be other opinions on the same issue as well. consistent with the minimum wage producing a beneficial impact on growth in those sectors. So far the economic evidence, I think, is encouraging in Q62 Judy Mallaber: Moving on to the minimum terms of the impact of the national minimum wage, wage, which has been referred to, my note here says and that is why I want to test it further to see just you called for a significant rise in the national how far we can get the national minimum wage up minimum wage. I was leafing through this and I without actually having these adverse economic think you called for an adequate minimum wage. I impacts. am not sure exactly what you have put down, so perhaps you can tell us what level you think the minimum wage should be at the moment. Is there a Q65 Judy Mallaber: What evidence is there, if any, minimum you would ask for? of employers cutting working hours to deal with the Mr Brinkley: Perhaps I can declare an interest here. higher hourly rate? I am actually on the Low Pay Commission, as one of Mr Brinkley: There is a little bit, but it is not the trade union commissioners. The TUC evidence conclusive in either direction; so we do not have firm to the Low Pay Commission calls for a minimum evidence that hour cuts are being reduced. That is wage of £5.35 by October 2005 and towards £6.00 by certainly something you would want to monitor very October 2006. I think our reasoning here is that we carefully. are looking for increases above the rise in average earnings to try and increase the impact of the national minimum wage as long as we are satisfied Q66 Chairman: How do our European partners there is not going to be an adverse eVect on handle the national minimum wage? They have been employment. This is basically the trade-oV in the doing it a lot longer than we have. judgment we are trying to make all the time. We still Mr Brinkley: Their national minimum wages, by think there is some scope to increase the national and large, have to do less work than ours because minimum wage faster than average earnings without they have collective bargaining over so much of their adversely aVecting employment—that is the basis of workforce. Typically, 80–90% of their labour our submission to the Low Pay Commission. markets are covered by collective bargaining; so the minimum rate is set down and those agreements are Q63 Judy Mallaber: I realise the Commission has to covering an awful lot more low-paid workers than is make that judgment and there is a degree of horse the case for collective bargaining in this country. In trading and analysis, but how does the TUC arrive terms of international comparisons, we tend to be at your view of what the market can bear, if you like, about in the middle at the moment in terms of the or what is the maximum that you can put in for? relationship to other wages. Again, as with so much Mr Brinkley: We have been looking at past increases of this regulation, they just regard it as part of the in the minimum wage, which has been going up over furniture. It does not cause huge problems for them the last two years at 7.5% per annum, and there is no in terms of either collective bargaining, structural impact on employment in the lower paid industries. labour market regulation, partly, as I say, because so Employment in the lower paid industries has much is done through the collective bargaining actually gone up over that period. So, clearly, the system in these countries anyway. 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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Q67Chairman: One last question. If we can come not train unless you are prepared to go a bit further back to the skills issue again, talking about high in terms of introducing some system of compulsion roads and low roads, I think it is fair to say that the whereby all employers do a bit in some way. Government has tried an awful lot in these areas and Mr Exell: Also, one persistent problem in this there have been a number of initiatives. Why is it not country is that we tend to see skills solely as a matter succeeding, or do you think it is succeeding? You about supply side problems—are we training have identified that one of our problems is the low- enough people—and the fact that we have got skills level of skills in the British labour force. Why are we shortages indicates that is an issue, but there is a not moving fast enough to improve it? What is the demand side to the skills equation as well. If you diYculty that we have in your estimation? look at what employers are looking for from Mr Brinkley: I think I would identify a couple of workers, overwhelmingly it is very low level skills points. One is it has taken us a long time to get to a indeed, and one of the things that we say about the reasonable infrastructure with typically the need to shift British companies up a notch is that we development of the sector skills councils and a much need to increase the demand for skilled workers, and clearer focus and a much more eVective focus on changing company strategies is going to be part of training for young people. So I think it is partly that. Relying on unskilled workers to do unskilled because it has taken such a long time to get to a jobs that they are not going to be committed to is decent institutional arrangement which would start part of an equilibrium that all has to be changed at to raise skills. It is partly because of traditional the same time. At the moment we have got a problem concentration and priority in looking at graduate where in many cases increasing the supply of skilled level skills. So we have been quite good at expanding workers would simply be pushing on a piece of the share of the workforce going into higher string. You would not actually get those skills being education and increasing the share of the workforce used. We need to get employers wanting to use their with graduate level skills, and much, much weaker workers intelligently, and when they do that they on this vocational skill element which is still a will find that they need far more skills from them. weakness within the British labour market. I think Chairman: Thank you very much. That is very we would say the reason why the progress has been helpful; a good start. It took rather longer than we rather slow is that we have not moved to a greater had anticipated, but that is in part because of the degree of compulsion within the system, what an ex- questions that your answers provoked. We may well adviser to the Chancellor used to call the “post come back to you on one or two points. There were voluntarism phase”, when it comes to building up references to bits of research and the status issue training arrangements in this country, but we which we might want to explore a bit further, but we suspect you are always going to struggle to reach bits will get in touch with you if we need you. Thank you of the labour market where employers simply will for your time this morning.

Witnesses: Mr John Cridland, Deputy Director General, and Mr Neil Bentley, Head of Group on Skills & Employment, Confederation of British Industry (CBI), examined.

Q68 Chairman: Good morning, Mr Cridland and factors essentially around regulation, and when we Mr Bentley. We have just heard from the TUC, who ask them which regulations, number one on the list have been arguing the case for greater UK by a high margin is employment regulation, number competitiveness but from a slightly diVerent two on the list—significant but a long way behind— standpoint from your own, I think it is fair to say. is environmental regulation, and those are the big You have, I think, highlighted the concerns of a two, and when we plot what it is that is causing them number of people that UK competitiveness could be concern, we know that there have been 21 pieces of undermined by greater employment regulation, extra employment regulation since 1998, either particularly coming from Europe, and I think your resulting from decisions of Parliament or from argument is that, because of what you see to be our decisions of the European Council, and in aggregate accredited status as one of the most flexible labour that has been a significant extra burden for them to markets, you are expressing anxieties. Could you digest, however laudable the individual measures perhaps highlight this for us. What are the grounds are. I think the reason that they place so much that you have that British industry and British emphasis on labour market flexibility as a source of business is being beaten down by regulations and we competitive advantage is that it compensates for are reducing our hitherto flexible status? Maybe you other competitive weaknesses that UK business could start there and we will move on. faces. So in our panoply of competitiveness policies Mr Cridland: When we survey our members on we would see labour market flexibility as something competitiveness they tell us that the UK is a very the UK trades on to make good some of our good place to do business. They take the view that it weaknesses in areas like skills policy or education, is less good as a place to do business than it was five or, to take a non-employment issue, our transport years ago, is likely to be less good, most alarmingly, infrastructure; and I think the concern of business is as a place to do business in five years time. Their that our competitive edge on labour market starting point is a positive one, but they see that flexibility is being chipped away at principally by advantage for investing in the UK slipping away. European social policy which is tending to When we asked them why, they quote a range of harmonise a labour market model in a way which is 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry unhelpful and indigestible for UK business, and this a problem with the principle of sensible regulation of is ironic, at a time when some of our principal hours and agreement on what is a reasonable competitors within the European Union are seeking number of days paid holiday, but the way in which to deregulate their labour markets. So if one looked the Working Time Directive works in practice has at labour market flexibility on a scale of one to five, been a complete dog’s breakfast. The second point I with five a high measure of flexibility, I believe we are would make is it is the 21 in aggregate. By any probably around four at the moment, but we are definition, that is a significant swing of the pendulum slipping back from that, whereas some countries and, however laudable the measures are who traditionally have had a very rigid labour individually, when you add them all together market model, like Germany, are making strong businesses are having to constantly rewrite their eVorts to try to deregulate and flex up their labour employment policies, retrain their managers, pull markets. I am not suggesting for a moment, discretion away from line managers, completely Chairman, that we are at risk of being overtaken, but counter intuitive to the way businesses are trying to we are seeing that competitive edge being eroded, empower people at the coalface and on the shop and, just to repeat what I said earlier, that floor, back into the corporate centre in this one area competitive edge on labour market flexibility makes in order to make sure they do not end up with up for some of the competitive weaknesses we have variations and end up before employment tribunals. in other areas of industrial policy. They do find the digestion of directives written in Brussels, which are essentially written for the Code Q69 Chairman: You have identified, as I understand Napoleon legal system and for formal collective it, skills, education and transport infrastructure. Let bargaining at national and sectoral level, essentially us put it the other way then. Are you saying that we indigestible in a labour market which relies upon have not done anything since 1998 to improve skills, individual agreement between manager and education and transport? employee, that does not have trade unions in four- Mr Cridland: No. fifths of the private sector for which we speak and where national agreements are virtually, with one or two exceptions, not in existence. Q70 Chairman: Because that would be one of the Chairman: I think that is a good start, as it were. conclusions one could draw from your remark? Mr Cridland: We have made some progress, but there remain principal areas of weakness. So on Q72 Mr Clapham: Mr Cridland, in your reply to the transport infrastructure, very briefly, we are Chairman’s first question and certainly in the tremendously supportive of the 10-year transport written evidence that you have given, you suggest investment plan, but we are trying to deal with 30 or that we in the UK need labour market flexibility in 40 years of underinvestment, so we have a long way order to make up the productivity gap and the skills still to go. In the educational arena I think you can gap. Would we not be better concentrating on these see real improvements in standards, particularly in two things, the skills gap, the productivity gap, primary school, but that has yet to feed through rather than perhaps emphasising the need for further significant improvements in secondary school; but, deregulation? at the same time, the jewel in our crown, the right to Mr Cridland: I think we put all of these competitive utilise people eVectively in the workplace without factors into the melting pot and see what the mix is, unnecessary rigidities, in hire and fire, in working and what is clear to us is that business is very time, in contractual relationships, is being eroded. determined to tackle the areas where we are currently underperforming; and I would not want to Q71 Chairman: You have identified the figure of 21 leave any impression that that is not an absolute pieces of legislation. How many of the 21 would you priority, but at the same time it cannot aVord to give regard as acceptable, because, let’s face it, there was ground on the areas that make up for those a view in the country at the time of the change of weaknesses. So, restricting myself to labour market government in 1997 that perhaps the pendulum had issues and leaving aside these other questions, for swung too far in one direction. We have heard the example infrastructure, simply on labour market TUC telling us that it has not swung back far enough issues, businesses in Britain rely upon the flexibility yet. To what extent do you think that of the 21 . . . of how they can recruit and utilise labour, working We will discuss the national minimum wage in a hours, work organisation, to make up for the fact minute. I do not want to go into details, but I want that skill levels are not as high as they would be in to get an idea of the extent to which you would say France and Germany. France and Germany have we want nothing or that at least some of them are not the benefit of higher skill levels. They may have more that bad and in a fair society we are entitled to flexibility in terms of skills utilisation, but they lose have them? that advantage because of maybe too high wage Mr Cridland: I think business would accept that rates, too high restriction on labour market most of the individual measures that we are talking participation. You can see the net result. We are about are laudable in their own right. I think broadly as competitive as those countries. Our business has two principal concerns. The first is the economy is doing well, we are not complaining way they have been implemented has often been about that, but our mix comes out diVerent from ham-fisted and has made it very diYcult for business their mix. We achieve more in terms of employment to digest. To take one example there, I would quote participation, in terms of having a labour market the Working Time Directive, where we do not have that is open to young people, to the unemployed, to 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry women returners; maybe France and Germany are agency temps, we are not opposed to there being a more ossified as a labour market, but achieve more directive providing equal treatment for agency in terms of productivity per person. We have never workers, but we are absolutely opposed to the argued in the CBI that there is an Anglo Saxon burden of that employment relationship being put labour market that is by definition ideal and a on the host business, who is actually in a commercial continental European labour market which is by relationship with the agency and does not want to definition dead in the water. There is a patchwork have any employment relationship with the agency quilt of labour markets across the European Union. temp who is the responsibility of the agency. So, in Each country at national level and establishment each of those two examples, I hope I have illustrated, level builds on its strengths and tries to tackle the business view does recognise the need for weaknesses. So, yes, we must tackle our labour security, is not saying “no”; it is saying appropriate market weaknesses, which are principally in the flexibility and security, but we have red lines and education and skills areas. The fact that we have lines in the sand beyond which we are not prepared seven million adults with basically literacy and to go, and that is where we diVer from the TUC, numeracy problems, the fact that 30% of school because I do not think the TUC are committed to leavers have to receive remedial literacy and labour market flexibility; I think they are committed numeracy training in their first six months in a job to a model which would unbalance itself with far too from their employer, having had eleven years full much emphasis on security. One can look at their time education paid by the taxpayer—we have to wish list when the unions met with the Labour Party tackle those problems—but at the same time we in Warwick in July. Their wish list included a whole cannot be complacent about losing the bits of range of measures which business felt had been put flexibility that make us competitive. To give you one behind them 20 years ago to do with overturning example, if the Agency Temps Directives is agreed, some of the trade union legislation of the Thatcher as I expect my friends from the TUC would wish it Government, restoring rights to secondary agreed, it will significantly restrict labour market picketing, having day one employment rights flexibility, so we are not prepared to lose what we instead of employment rights after a probation have certainly while we are busy making up for our period, currently one year; a whole series of deficiencies in the areas that we are not competitive proposals which are serious commitments from the in. trade unions which, in our judgment, but they are perfectly entitled to lobby for them, would significantly restrict the labour market flexibility of Q73 Mr Clapham: I think my colleagues will come to the UK economy. We also have a European the Agency Temps Directive at a later time; but I Commission which is committed to a revision of a think we had the same kind of arguments that you Working Time Directive and to a draft Directive on have just put there when the minimum wage was put Agency Workers, to name but two, which would in forward, very similar arguments. What I want to ask our judgment go significantly too far in removing you is with regard to comparisons on productivity essential labour market flexibility. and skills, most generally we see comparisons with the UK rather than with Europe, and if one made the comparison with Europe, even though one sees Q74 Mr Clapham: Let us return to what you said much more regulation, I think it does show that one about the Working Time Directive and relate that to can have high productivity rates, one can have skills. Has any research been done by your team to reasonably high employment but at the same time look at whether imposing the opt-out would result in have this greater form of security; and from what employers concentrating more on skills in order to you said about the flexibility and security relating it make up the gap? to a peculiar British model, you seem to be not too Mr Cridland: Neil, do you want to go through our far away from what the TUC was saying that they survey evidence. would like to see a framework in which there is Mr Bentley: On working time, the main concern is security but flexibility as well. Have you discussed the withdrawal of the overtime, that is what is vexing this with the TUC? Is it an area that there is some our members mostly, and our recent survey shows commonality on? that between 70 and 80% of members would be very Mr Cridland: The devil, as ever, is in the detail, and concerned about withdrawal of the opt-out because there is only so far one can get, I think, at the sort of the impact on their business and, in particular, of high level concepts. We have no problem with the their ability to meet the demands of customers. principle of security as long as it is delivered in a Employers are very committed to oVering flexible balance with flexibility. Then I think one has to come working arrangements. Our surveys also show that down from that high level to the specifics. As I have 84% are oVering part time working and 30% are mentioned, we are not opposed to an overall limit on oVering other flexible forms of working. So there is the number of hours that can be worked and a level definitely a commitment to working time issues in of paid holiday which is agreed by democratically terms of making sure it works for the business and elected politicians. Where we would diVer from the making sure it works for employees. The skills TUC, we believe that essential protection in place is agenda is also very close to employers’ hearts, and an absolute human right for the individual to decide we have been working very hard at the CBI and also how many hours they choose to work. So we can live with Government and with the TUC and the Skills with the directive, but we absolutely are committed Alliance to make sure that that rises up the agenda. to the right of the individual opt-out. If you take As John has just pointed out, we do have a skills 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry deficit, we do have a problem with the education Q77 Miss Kirkbride: When we were listening to the system and widely in the economy area and skills TUC’s evidence before you came in their argument issues and up-skilling and we want to see real was very much that, whilst the 21 pieces of commitment from employers make sure that they legislation have come through following more the are taking those issues seriously; but the employers European social model, there had been strong are spending £23.5 billion a year on skills, and, employment growth in the UK, and particularly the as John was saying, you cannot separate the two more marginal groups in society were less likely to be issues. You cannot demarcate skills from other employed. Whilst I would want to point out from my employment legislation because you need to take the party’s point of view that employment growth was views in the round, take a holistic approach. greater pre-1997 than it has been post, it would nevertheless be churlish to say that there has not been strong employment growth, because there has. Q75 Mr Clapham: It is precisely because you cannot So from your perspective, how do we employ demarcate that I am asking if there is any evidence arguments against the TUC, who say, “Look, what that moving into a situation where there is no is the problem”? withdrawal from the opt-out would actually result in Mr Cridland: I think we have to look at the a great concentration on achieving the skills to make individual measures. Let me take a diVerent one up the productivity gap that would disappear as a from the one I have already quoted. If you take the result of long hours? minimum wage, the real debate about the minimum Mr Cridland: I think business is doing everything it wage is not whether it is a good or a bad thing, it is can to try to tackle that skills gap currently. Let me about the level it is set at. It was brought in by this give you one specific piece of evidence from our most Government at a prudent level. Everyone accepts recent employment survey. We ask every year: what that the level it was brought in at was designed to do are the factors that are most critical to present and as much to help as possible with the minimum future competitiveness? Management skills come possible risk, and there is no evidence—and I should top of the list with 62% of respondents, workforce declare an interest; I am a member of the Low Pay skills come second on the list with 54% of Commission—but there has been no evidence to respondents, low labour costs is bottom of the list date of a macro impact on employment levels that is with 12% of respondents. I think what that says is we negative, so it is something of a success story. We have got the flexibility we need; we have not got the will see going forward whether that success story can skills we need; we do not want to lose the flexibility; be maintained, but there is plenty of evidence from but, you are absolutely right, business needs to do continental Europe, from France and Spain in everything it can to tackle the skills gap; and particular, that if you set a minimum wage at too business is giving that absolute priority. What high a level it begins to undermine those very business would say in relation to skills is it is employment participation figures. People who are hamstrung at the moment by poor standards of deeply scarred by the eVects of unemployment, attainment of school-leavers and therefore it needs young people in particular, were not well served reform of the education system to give it a platform when the minimum wage for young people was too to provide vocational skills on top, but the high in Spain. It had very negative eVect on youth commitment to up-skill is absolutely at the top of the unemployment. So I think we have to break down list of competitive priorities. the issues, and at the end of the day it is how these Mr Bentley: Could I add, with that it is all about things are implemented and at what level that makes functional flexibility. Without the up-skilling, the real diVerence. Some of these measures have not without the skills, you cannot achieve that been well implemented. Others, like the minimum functional flexibility where employees do have the wage, have broadly been a success. appropriate skills, where they can adapt work practices and move between one work practice to another work practice, which plays to the point Q78 Miss Kirkbride: Taking another one of the around productivity. We need to have that sort of TUC’s arguments, I think they were saying that if we adaptability in the workplace. We need to make sure have more employee protection that will boost the that employees have those skills that can react to productivity rate for people who are happy in their those changing demands internally. jobs, presumably, or whatever, and are prepared to work harder, and therefore that was another reason for going ahead with it. Conversely, perhaps you and Q76 Mr Clapham: So you would be very pleased I would agree that flexible employment markets will with much that has gone on in education since 1997, produce better goods. On the other hand, the simple particularly the moves in secondary education to fact is that we still have a very big productivity ensure that people are coming out of schools with gap, having had very flexible labour markets. the skills that employees require in terms of literacy Nevertheless, having had those flexible labour and numeracy? markets, they still do not entirely produce the goods Mr Cridland: We are undoubtedly moving in the because we still have a productivity gap. So how you right direction. I think business can see greater answer that one? progress in primary education than it can currently Mr Cridland: There is no silver bullet for solving the see in secondary education, although I think problems of our national productivity levels. I think business respects the fact that it takes a while for what is clear is that it is a range of factors and there these policies to flow through. is long historical evidence of how those factors build 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry up over time. A lot of the reasons behind our seen a 40% increase in its electricity bills this year, it productivity performance are not essentially labour is seeing a commodity price increase, it had virtually market issues, they are issues of capital, capital no ability to pass price rises on to its customer and intensity, capital utilisation; they are issues of the so anything it wanted to achieve had to be achieved financing of industry; they are issues of the extent to through improved productivity. which we have long-term investment, but within the Mr Bentley: Further on the job protection point, as labour market area I think there are many we were saying earlier, you have to strike a balance companies in CBI membership that are now global in protection and security and flexibility, but people businesses that find the national figures on must be mindful of the unintended consequences. If productivity hard to recognise, because on a you look at, for example, hire and fire regulations in matched plant basis they cannot see a significant countries like Spain, where over a three-month diVerence between labour market productivity in the period you are only allowed to make redundant 30 UK and labour market productivity in their French employees, what is the consequence of that? It is high or German factories, so they scratch their head a bit levels of workers on fixed terms contracts. If you do when they see the government’s national statistics. start to look at increasing protection the unintended I think we know that there is a tail of consequence is that you start excluding people from underperformance, that our world-class companies the labour market, labour market outsiders, young are probably as competitive as their peers in other people and people with disabilities, returning countries but we perhaps have a greater tail of mothers to work, and we do not want to get into that underperformance in productivity terms, and that in situation where you are not promoting the part may relate to the size of the service sector in the flexibility, which is about job creation and seeking UK where you have many more smaller businesses, job opportunities in the firms, not closing people and I think we all struggle to measure productivity out. in the private sector of services. How do you decide Miss Kirkbride: I am quite happy, Chairman, to whether putting an extra person into a customer pursue some of the remarks that were made about facing occupation is adding to labour costs and productivity. I am quite surprised that you reducing productivity or providing more customer challenged oYcial figures on productivity. It would delight? So it is a very complex picture. What I can be quite helpful if you had any information on that? say is that when I am out visiting CBI member companies, they would not be able to be adding the Q79 Chairman: You can send us a note. value they are to the UK economy today without Mr Cridland: With respect, I do not think we would that flexibility. A week or so ago I visited a sandwich challenge the national figures. We would say that at factory where we are talking about mass production an establishment level, at a company level, chief of sandwiches to specifications set in the early hours executives often find the size of the productivity gap of the morning by the major supermarkets, with a hard to recognise, and I think there are very serious workforce of four and a half thousand people to get issues about how we measure productivity and how the exact mix of sandwiches right for that day. That we translate from macro to micro, and I do think can only be done in an area that the company would that we still have productivity measures which are willingly accept has a lot of mundane and routine most meaningful in a manufacturing environment activity by highly motivated staV with a strong where clearly if you do reduce the amount of commitment to doing a good job, with high working hours spent on a product you are improving commitment to hygiene standards to contract productivity. It is quite hard to measure productivity improvement in what they are doing, with good both in the public sector of services—we see that at communication between management and staV, but the moment—but also in the private sector of with essential flexibility on the working hours services, where it may be the right thing to do to whereby they can vary the number of people on each increase head count for a fixed level of production if sandwich production line each day according to that enables you to better meet customer demand in what the major supermarkets specify; and the way a supermarket by providing somebody to pack bags they flex that is by flexing working hours and the way at a check-out till or an extra waiter or waitress in a they flex it is by bringing in agency workers on a restaurant. So what I am saying is business is puzzled daily basis to deal with peaks and troughs in that the productivity gap looks as big as it does. I am demand; but those bits of flexibility build on a very not disputing that those figures may be the best productive permanent work force that I felt, having figures we have available. talked many of them on the production line, were very committed to what they were doing. That to me Q80 Chairman: Mind you, it does not make much is the reality of the modern labour market. So I do V not accept that we are losing out on productivity di erence if you throw more bodies at them if you do not train them to do the job? gains that we could achieve by forcing people Mr Cridland: Indeed. into a one-size-fits-all solution, higher levels of Chairman: And that is very often the case. employment protection that force employers do things they are not doing. No employer in any international competitive sector would not be doing Q81 Richard Burden: I was going to ask you to define everything they can to up-skill everything they can what you meant by “flexibility”, but I think you have on a weekly basis to find ways of becoming more been round that track quite a lot. I would like to productive: because that same sandwich factory had pursue with you this issue of constraints on 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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flexibility. Are you saying that any increase in Q84 Richard Burden: Let us just pursue the way protections from what they are for employees is a things are implemented. You have used the words threat to flexibility and therefore a bad thing? about the fact that you have got red lines, and one of Mr Cridland: No. the red lines in relation to the Working Time Directive was saying that employees should work Q82 Richard Burden: From where we are now? with their employers to adopt flexible sensible Mr Cridland: We are not saying that. Even from working arrangements, but your red line was the where we are now there are measures which we have absolute right of an individual to say that they want actively supported. To give an example, I would to work more than an average. I understand that. look at the age discrimination legislation that will Are there any bottom lines on that? Is it provided come in in 2006. We support that in principle that an employer can say, “This person has agreed because we believe that is one area of the labour it”, actually somebody could be working 50 hours, market where security and protection is currently 60 hours, 70 hours, 80 hours, and that is an not adequate. We have quite strong views about how absolute right? it should be implemented and how we get win-wins Mr Cridland: Like all absolute rights, it is then and avoid the downside eVect of unnecessary prescribed by certain agreed necessities. If there is a employment litigation, but that is a measure which health and safety risk, clearly somebody cannot have in principle we would like to see come in. On agency an absolute right to work in a way that puts other temps, in principle we believe there is a need to fill the colleagues and customers at risk. We have always gap of employment protection that currently exists recognised that with lorry drivers, with airline pilots, for agency workers. Our concerns about the and we would recognise that wherever there is a proposal are the nature of the proposal, not the health and safety case, but most of the Working principle of the proposal. So we certainly are not Time Directive is not a health and safety directive, it saying the status quo is okay; but we could not is a mainstream employment directive. We would possibly have anything else. then accept there are restrictions related to potential abuse if an employer, because of an unequal power relationship, is getting agreement by some form of Q83 Richard Burden: That being the case, is it not a coercion. That is clearly unacceptable. We have seen bit sloppy to talk about 21 bits of extra regulation a few examples, but, I would stress, they are a and say, “There is an aggregate eVect here”, on the minority of examples, where employers have asked one hand, and say on the other hand, “Actually it is an individual to sign an opt-out to the Working not about whether there is too much or too little, it Time Directive when issuing an invitation to come is about whether the regulation is right and whether and work for them. I do not think that can be it is applied properly.” Continuing to talk about 21, justified—that is clearly not an equal power issue— does it not encourage sloppy thinking? but where an individual is making a free choice and Mr Cridland: It would if we based our whole where they are not oVending one of those health and argument on the aggregate burden. I think the safety examples, just as the Working Time Directive aggregate burden is really a point about digestion. gives them an absolute right to say, “No, boss, I will Small firms often say to me that they cannot cope not work any extra time and you cannot make me”, with the amount of extra employment regulation so we believe it should leave them with the right to that they are having to deal with, they simply cannot say, “Yes, I consent in working this extra overtime keep up with the number of changes to regulations, because I want to and I want the money and I do not and, indeed, the recent development of having need a trade union or a government or a European regulation days twice a year was designed to help Commission to tell me I cannot.” them with that process of digestion so they could timetable when they would need to change their Q85 Richard Burden: So on the opt-out would you practices. I think the aggregate issue is simply about support a regulation which said that an employer is the tide of regulation, and I think we need to not allowed to use any pressure on an individual to recognise, particularly when the TUC and other reach an agreement to opt out to work longer than organisations are arguing for even more, that we 48 hours? A specific regulation covering that? have had a lot, but, taking that as a headline point, Mr Cridland: Subject to the points of detail, yes, and you are absolutely right, it is then a case of how the we have been involved in talks with the DTI which, regulation is designed and implemented, because interestingly, the TUC would not become involved one of those 21 was the provision in the 2002 with, to try to reach an agreement on perceived Employment Act to provide employees with a right abuse. One particular— to request flexible working. That piece of regulation, I think, is a benchmark for how to get things right. I do not meet anybody in the business community Q86 Richard Burden: No, no, I am talking about a who believes that regulation has done any harm, and specific regulation to cover the rogue employee you I meet a lot of employers who believe it has helped were talking about? to provide a framework within which their managers Mr Cridland: Yes, we would, subject to the detail. can sit down with their work colleagues and agree, Absolutely. in the way that Neil was describing, sensible working hours. It is a million miles away from the disaster we Q87Richard Burden: That is useful to know. Can I had with the Working Time Directive, which is move on to something that the TUC said, because in another of the 21. terms of the way they were approaching this, they 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry end up with diVerent conclusions from you but you Department of Trade and Industry on information both argue the same kind of thing on working time, and consultation has provided the UK with a much and that is that you actually want employers and more sensible basis for implementing that directive employees to agree arrangements locally that in the UK than the default mechanism which we promote flexibility but also promote a rise. You end would have had to have accepted, what is written up with diVerent conclusions on that. You would into the articles, if we had not sat down and had agree with that; that promoting that kind of those talks. discussion locally is actually a good thing? Mr Cridland: Yes, but the diVerence is we believe Q92 Richard Burden: And on working time you that is achieved by retaining the opt-out and they are would agree for a regulation to come in that would determined to have the opt-out scrapped, which is a require discussion between employer and employee pretty big diVerence. before any opt-out was agreed? Mr Cridland: We accepted an invitation from the Q88 Richard Burden: You end up with diVerent DTI to sit down, they hoped with the TUC, but the conclusions on that, but if you think that the process TUC did not attend the talks, to discuss what abuses of discussion to agree working hours or, indeed, there were to the Working Time Directive that other things about the way a business is operating— needed to be addressed by regulation, and we the prospects for the future, how many jobs there support regulations that would deal with that abuse, should be—promoting discussion on those is but I do need to come back to this. actually a good thing? Mr Cridland: Yes, indeed. Q93 Richard Burden: That would include, would it, joint discussions between employees and/or their Q89 Richard Burden: So why did you therefore representatives as they existed and the employer in consider rules that promote that kind of social joint agreement. It would include that? partnership to be regulation and therefore Mr Cridland: It might or it might not. It depends on undesirable, for instance Information and whether the trade unions accept the principle of the Consultation Directives? individual opt-out. Mr Cridland: We opposed the principle of an Information and Consultation Directive on an issue Q94 Richard Burden: No. I am asking your views of subsidiarity. We did not see why a business about what would be a good thing? employing fifty people in Barnsley should have the Mr Cridland: Our view is that individual working same rules on how it talked to its staV as a business hours are a matter for agreement between an employing fifty people in Barcelona. employer and the individual employee. We are quite happy that any abuses to that are tackled, but we Q90 Richard Burden: But you said that if it was believe it is a matter of individual choice. The reason domestic law you would think it was a good thing? I am hesitating with my answer is because if the trade Mr Cridland: If it was domestic law we would have unions argue that you can have whatever talks you looked at it diVerently, yes. Our principal concern is want on working time but it is between an employer that the TUC still tend to go to Brussels to force a and a trade union and, as a result, you do not need labour government to accept legislation, where it is the individual choice of the opt-out, we would not outvoted in the European Council, that it cannot get have agreement with the TUC. We believe that through domestic discussions between the CBI, the individual opt-out, so long as there is no pressure on DTI and itself. the individual to sign it, is an essential human right.

Q91 Richard Burden: I want to get that clear. Laws Q95 Judy Mallaber: Following on from that, I am to promote social partnership, information, becoming confused as to when you regard consultation, collective bargaining, new laws to something as a regulation, which therefore goes on underpin that and promote it as a way of avoiding your list when you are doing your, I had better not unnecessary regulation, are things that you would say propaganda, when you are making your case actually support provided in was done in UK law that having 21 regulations is just too much. I am not rather than in Brussels? quite clear when something becomes a regulation Mr Cridland: Once we lost the battle on having that that has to go in that list and when it is one that does directive, we sat down and reached an agreement not count. You came perilously close to saying that with the TUC and Government in tripartite talks information and consultation would have been all chaired by the Employment Minister that provided right if it had been introduced through domestic law the framework for the regulations which will but not because it was introduced through Brussels, implement information and consultation. So we are which did not seem to me to fit in with an argument a pragmatic organisation; clearly business will not about whether it was a bureaucratic explanation or vote for new bits of regulation that it does not believe not. Can you maybe explain a bit more clearly? are necessary; but if democratically elected Mr Cridland: My number 21 is simply a factual politicians make that decision, we will then work statement of how many major pieces of employment with the trade unions and with government to make regulation there have been since 1998. So it is a list. sense of those regulations, and I think it has been The reason for mentioning it is the aggregate burden recognised by ministers that the high level agreement on employers. Within that list there are some reached between the CBI, the TUC and the measures which were decisions of this Parliament, 3055811001 Page Type [E] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry some measures which were decisions of the management skills, because it implied that that European Council and the European Parliament; company would lose skilled workers who had learnt some measures which have been implemented rather how to do that job over many years if they then well, some measures which have been implemented needed to change their working hours. Can you say rather badly; and we need to take each of the 21 some more about whether you feel that all that that separately. On each of those we would have a directive has done, all those regulations have done, position on how much of a negative impact they is to encourage the good, productive, encouraging have had on labour market flexibility. What I have employer anyway and have not done much about tried to do is illustrate the two extremes with the the more negative approach of some other example of the Working Time Directive, which I employers? think has been a bad piece of legislation very badly Mr Cridland: I think the fact that in 8% of cases the implemented, although there is a sensible piece of request has been turned down is the real signal of the legislation lurking there, if it had ever been written, success of this regulation. I would have been very and at the other extreme the right to request flexible disappointed if it had been 30% of cases that had working, which I think has been an unqualified been turned down. So in the vast majority of cases success. So we are not making an argument that the employer entertains the request of the employee, there are 21 pieces of regulation that should be got but I would argue that in those 8% of cases there will rid of. The CBI is not advocating getting rid of any be objective reasons as to why it was not possible; of those 21. We are saying that some of them have and the reality of the situation is flexibility does cramped our members’ essential labour market apply very diVerently across the economy. It is no flexibility and in each and every case could be surprise that some of the best examples of improved. benchmark companies out there doing the most progressive things on working time flexibility are Q96 Judy Mallaber: Can I pursue the successful High Street businesses that are consumer facing, one that you mentioned a bit further about because that is where you get the most obvious win- the entitlement to request flexible working wins. People want to shop, have services provided on opportunities? Have you any information on the a 24/7 basis. You need to provide staV to meet that volume of requests that have been made to your requirement. There are peaks and troughs in that members from their staV and also how your demand and you can get a fit between the customer members have responded to those requests? need and the individual need. So a worker who Mr Bentley: We have the specifics in terms of the wants to fit his or her hours around childcare number of requests made. Over three-quarters have responsibilities might actually, with a partner, be been accepted by employers and only 8% rejected on prepared to do diVerent work, diVerent shift objective business grounds, and what we have seen patterns, in relation to the customer that meet the is a lot of members already had in place processes for customer’s need. It is, I think, rather diVerent in a discussing flexible working with parents of young more traditional manufacturing environment: children to make sure that the framework is in place, because if you have got a more traditional fixed to make sure that employees’ needs were met production line and you need 80 people to turn up alongside those of the business needs. It has been for the nightshift, you are hamstrung if half a dozen taken up very positively. We have seen our results of those people do not want to work beyond halfway showing that, DTI results showing that and other through the shift. So what you tend to find in those surveys showing that employers have met this piece manufacturing environments is a diVerent form of of legislation in terms of not just in the letter but also flexibility, a form of flexibility where the whole shift in the spirit; but it is very much because it is based on get together and says, “Actually, we can get all of a right to request, it is not an absolute right, and our work done an hour earlier and knock oV”, and there is dialogue and there is accommodation; but, the employer says, “Yes, as long as the production of course, where employers do feel that they cannot quota is met, fine”, or on a weekly basis, “Perhaps meet the request, and we have to be clear that it is not we do not need to work beyond lunch time on Friday always possible to meet every individual’s request because we have achieved our targets”, but in a fixed for flexible working, for objective business reasons, manufacturing environment there might be more then it is right to say no. shift flexibility but less individualised flexibility because people are not working in the way that they Q97Judy Mallaber: There is a right to object and would be in a shop directly servicing customers on a reject and you have said it has not created particular much more individualised basis. It will vary, which problems, presumably because employers can just is why there has to be a complementary business case say no, but how far do you think we can push it to to the case of the individual. What I think is clear is make those employers that maybe do not operate in that we would not have had this success that we have a very sensible way operate in that way? I recall a had with the right to request five years ago. Where previous inquiry I was on on another Committee regulation works well is where it catches the tide of a about part time workers, and we had an employer change of view in society. We have all become more from the textiles industry saying, “It just is not flexible to what we are prepared to accept, employers possible to introduce part time workers who just do as well as employees. There is greater demand for not understand our production process.” To me that flexible working, there is more willingness by just seemed to be an example of rigidity which was employers to accommodate it. So the regulation was probably not necessarily showing very good fit for the moment because employers are finding 3055811001 Page Type [O] 13-05-05 22:42:13 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry that actually they can break down some of the old- members show that they are oVering part time fashioned barriers between full time work and part working; 31% are oVering flexitime; 38% are oVering time work and be much more accommodating. I jobshare schemes and 28% career breaks and think five years ago the debate was not anywhere sabbaticals.1 So CBI members and employers near as ripe as it now is. generally are going quite far down this road of thinking about flexibility, oVering flexibility, Q98 Judy Mallaber: What about those employers, particularly to address the issues that you have like the ones I have mentioned, who seem to think raised around labour market outsiders such as that because you have got a fixed production line it women and women returners. They do take very is not possible to work part time without even seriously the issue of gender equality in the looking at whether you might get two part time workplace and do want to utilise the skills that workers to cover that area? I have firms in my women have to oVer. We were talking only last week constituency who do operate flexibly on production with the EOC looking at this issue of gender lines and others that clearly cannot envisage such an segregation in the labour market and how we could idea. There does not seem to me, when I look at their work together in terms of overcoming barriers that production processes, to be much diVerence still may exist, but employers are very committed to between them? the principle of flexibility to make sure that they can Mr Cridland: Each case will vary and needs to be build on the skills that women have to oVer. looked at on its merits, but ultimately those businesses that just slam the door in the face of the Q101 Judy Mallaber: How far in terms of pursuing employee and say, “I am not even prepared to think that would you regard parental leave, maternity and about it”, will lose out in the war for talent, but if paternity, as being a burden and how far would you they play their cards very badly in the way I have just regard them as being a positive contribution to the described, they will oVend the regulation, because issues that you have just been talking about? the individual has a right to request, they have a Mr Bentley: Returning to paternity leave, there are right to have their request seriously considered, they individual issues at play around women who are have a right to have written reasons which give a going on maternity leave, when they leave work and clear business case; and they can go to a tribunal if when they return to work, and the key issue around they think the employer is just ignoring and refusing maternity and paternity at this stage in the debate is to engage, but we cannot get everybody to catch up around potentially signalling a return to work with the tide; there will always be laggards. I do during the maternity leave period. Employers are think overall the fact that only 8% of requests have very happy, obviously, for women to go oV and have been denied is a success and one that employers are babies, but the key issue they are concerned about is as happy to see work as employees have been. the lack of clarity during that leave period as to when employers can contact the individual to discuss a return to work and how appropriate it is to do that Q99 Judy Mallaber: I take it from what you are when the individual is on leave period. An EOC saying that you would endorse the recent pamphlet investigation into pregnancy just recently has of the Secretary of State in which she said about highlighted these issues and the EOC would like to employers that had a happy work force, “Instead of provide more clarity to employers to encourage imposing long and rigid hours on their workforce employers to engage in dialogue with individuals they understand that by giving their people more who are on maternity leave to allow employers to choice and control over working hours they achieve plan ahead: because, remember, on maternity leave, higher productivity and better results”. That is an for example, an employer, especially a small approach you endorse? employer, may have had to recruit somebody on an Mr Cridland: Yes, indeed. agency temp basis or a fixed term basis, and they have a responsibility to those individuals as well in Q100 Judy Mallaber: One of the areas you have terms of forward planning, how long they will need identified early on about lack of skills, that being one the particular worker to stay in the workplace, and of our biggest problems in terms of productivity, one there needs to be a dialogue with the woman who is of the largest areas where we have an untapped on maternity leave. So while we are happy for those resource in terms of developing skills, is amongst provisions to be in place to encourage people to take women, and this whole area about flexible working the leave they need to take, the other side is the opportunities is obviously very important to be able responsibility on the individual to actually discuss to deal with that, but that also ties in with cutting the with the employer their plans for returning to work. long hours culture. How do you tie all of that into what you were saying about the Working Time Q102 Linda Perham: The CBI opposed the Directive? What would you seek to do and minimum wage, the introduction of it. You referred encourage your members to do to enhance the to it earlier as something of a success story. So would opportunities to use the skills of women? you admit that you were wrong to oppose it? Mr Bentley: It is a very important question you raise, Mr Cridland: No, I think the concern was always but I think we need to set it in the context of what about the level. We opposed the minimum wage employers are currently doing to encourage this before the 1997 election because we feared that it flexible working and work-life balance. We have got the second highest rate in the EU of part time 1 Note by witness: the figure for career breaks and sabbaticals working (OECD stats). Eighty-four percent of our is in fact 20%. 3055811001 Page Type [E] 13-05-05 22:42:14 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry would be brought in at too high a level. What we Mr Cridland: Just on the TUC point, it is clearly a were oVered by the incoming government was the fact that to date employment figures in the most opportunity for three employers, of whom I remain aVected sectors have gone up, but that data is one, to sit on the Low Pay Commission and have historic, and we will now need to see the impact of some influence in the discussion as to what was the two 7% plus increases and I just do not know what right level. I think the success of the minimum wage the impact of that will be. In relation to compliance has resulted from the Low Pay Commission finding with the minimum wage, I think at one level the a level which provides the maximum amount of minimum wage has been successful because it had a protection for the largest number of workers light touch approach to compliance. We have without putting their jobs at risk. publicised the figures, we have made the figures very nationally available with advertising campaigns; we Q103 Linda Perham: So you are saying you were not have enabled people to take complaints to tribunals; opposed to the principle, you were concerned about we have put in place an enforcement team within the the level? Inland Revenue which does spot checks particularly Mr Cridland: The level is the issue. In no election on employers and sectors it thinks might be suspect; since 1997 has the CBI made any statement that it and overall I think the Inland Revenue would argue wants to see the minimum wage withdrawn. that compliance has been successful. The problem with minimum wages the world over is that the bottom end of the labour market, as you say, Q104 Linda Perham: You referred earlier to the overlaps with those who simply will not comply, and problem of the level and, in response to earlier the businesses, the under the railway arches rogue answers, I think, you said there had been a problem businesses that are not going to pay the minimum in Spain with the level for young workers. Are you wage, are not providing employment contracts, are confident that that balance can be achieved in the not providing health and safety policies and are very mechanisms we have for looking at it, or do you diYcult to regulate. All I would say is that when one think there is a danger that it could be set too high, looks at other countries which have had minimum and, if that is the case, where would the indicators wages for decades, you find a problem of non- come? Would it be in a loss of jobs or how would you compliance. What I think particularly concerns the see that? CBI is that if, as I hope, we do speak for the Mr Cridland: I think the indicators, if there is to be reputable end of the business community, if there is a problem, will now come quite quickly. I think they to be a law, then our small businesses could suVer will come over the coming winter and into the new unfair competition from small businesses that are year, and that is because we have had two increases not obeying the law, and there is some evidence, I in the minimum wage, in October 2003 and October think, of displacement of activity from the formal 2004, both in excess of 7% in two consecutive years, regulated economy to the informal unregulated and that means that companies under quite intense economy because of the minimum wage. If you talk private pressure, particularly, for example, in the to hairdressing employers one of the immediate retail and hospitality sectors or in internationally impacts of the minimum wage in hairdressing is that competitive sectors like textiles, have had to increase some people stop working in hairdressing salons and earnings by roughly double average earnings in two just set up on their own, cutting hair in people’s consecutive years. We do not know what the impact houses, probably outside the regulated economy. So of the £4.85 figure of 1 October this year is yet; it will I think there will have been an increase in the be several months before we can see the impact. Let informal economy, but I would suggest that is true us hope that companies have been able to in every country which has a minimum wage and accommodate that increase without a negative there are parts of the economy which the regulator impact, but we have taken a risk with this most will never reach. recent increase. We have ratcheted it up and, for the first time, many more companies are aVected than have previously been aVected. Many of our biggest Q106 Mr Hoyle: It is interesting that you do mention retailers now find that their recruitment rate is not sole traders, because that has always been historical much higher than the minimum wage. Three or four in the hairdressing trade. There is nothing new in years ago they would not have seen themselves as that, and I think we ought not to go down that line. employers aVected by the minimum wage. So it is Can I bring you back. You said at the moment on becoming more of an issue, but I think the jury is out the new proposed wage increase that the jury is out. for several more months as to whether the increase How long is the jury out for at the moment? has slightly overdone it. Mr Cridland: The increase only took place a month ago. Therefore, it will be a year before the ONS’s Q105 Linda Perham: The TUC told us that in low national statistics can show us what the impact has paid industries in fact the levels of employment have been on the wage distribution. An area that CBI is actually gone up. I do not know if you have any particularly concerned about is the impact on evidence of this. Is there any evidence of abuse of the diVerentials. When the minimum wage was set at a minimum wage, that there are employers who are prudent level the impact on diVerentials was not paying it, and do you also think that if the level relatively modest. By ratcheting it up in real terms by goes up to what you see to be too high that there will which, if we bring it oV, if it works, fine, we are doing perhaps be an increase in the numbers of people something useful for people on low pay, but we are trying to avoid paying the minimum wage? immediately now impacting on people who do not 3055811001 Page Type [O] 13-05-05 22:42:14 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry feel they are anywhere near the minimum wage on aVected by the minimum wage does not mean that it £5.00, £6.00 an hour who would expect to have their has been easy, particularly for small businesses, to diVerentials restored. The traditional approach of accommodate increases in price, in wage costs, when the Low Pay Commission since 1999 was to increase they cannot pass those on in prices, and I am sure— the minimum wage one year and have a pause year I have seen it myself as a Low Pay Commissioner— the second year and then increase it again the there has been displacement. Some of that following year. What the ONS’s figures show is that displacement may be from businesses that, frankly, companies that were under really tight pressure in were not quite viable, some of it may have been the year that the minimum wage went up displacement from smaller business to larger concentrated on people at the very bottom and businesses in a way that is not entirely healthy for the diVerentials got squeezed. In the year when there economy. So it can be a success but at the same time was a pause year in the minimum wage, or a very it can be quite diYcult to digest. In relation to our small increase, a 10p increase, they did not do much philosophy for the minimum wage, we believe in a for people at the bottom but they restored minimum wage which is a floor in the labour market diVerentials for people above. One of the things we and therefore we do not think it should be ratcheted are looking out for is a 7% increase two years up constantly as a way of implementing a national running may well have squeezed diVerentials up incomes policy. Indeed, government has a number badly and over the coming months we may find of other tools, like tax credits, which it uses to companies under real pressure to restore provide support to families where it does not believe diVerentials up the wage spectrum in a way that they that their wages are suYcient for their living needs, cannot aVord because they have not had the time to and that provides a much higher level of support accommodate that diVerential increase. I guess we than the minimum wage. I think we make a great will know better in a year’s time how serious that mistake, a mistake that perhaps some of our impact is. colleagues in continental Europe fell into in years gone by, of trying to use the minimum wage as a Q107Mr Hoyle: It is interesting that the minimum form of national incomes policy. wage has helped business in a lot of ways, businesses Mr Evans: How about taking the politics out of it that were trying to do the best, were paying good altogether then and operate the minimum wage as wages, were being undercut by people who were we do interest rates and have a body separate to the paying very poor wages, and at least we know there government that decides what level it should be set is legislation there to protect the good businesses and at? actually fight those businesses who were trying to Judy Mallaber: We do. compete on a slave wage economy. Therefore there have been real bonuses for businesses and we have Q109 Mr Evans: No, but the Government ensured that there is a fair and even playing field, and themselves can implement it when they want to hopefully while that remains we will then stop the play politics. unscrupulous business. You will never get away Mr Cridland: The Low Pay Commission, on which from under the arches, because it could be dodgy, I should state again I sit as an employer but there are those other businesses that deliberately commissioner, does make recommendations to set up to compete by undercutting and paying poor government. It is ultimately a matter for ministers wages. That has not happened; they have had to and Parliament to make the final decision. I think it ensure that they have paid the minimum wage. So we is fair to say that over the period since the minimum ought to say there are some real bonuses for those wage first report in 1998 the Government has good employers? adopted virtually all of the Low Pay Commission’s Mr Cridland: Yes, I mentioned very much earlier in recommendations and certainly all of the proposals my evidence that the minimum wage was one of the for levels of the wage. success stories and to date business has felt that the impact has been broadly positive. My comments on Q110 Mr Evans: Would you prefer, though, to see it the future clearly relate to an unknown situation V taken completely out of the hands of government where we need to see the e ect of a much more and this Commission itself stating what the significant increase. minimum wage should be and the times at which it comes in? Q108 Mr Evans: I am wondering whether you think Mr Cridland: We are actually quite comfortable with that the minimum wage is just an easy tool for the the procedure we have at the moment, because we Government to give money to people at no cost to have not seen any evidence of undue political themselves whatsoever when they announce influence over the operation of the Commission. So everything with all the trumpets going to say our in a sense you are posing me a problem that we have minimum wage is going to go up? It does not cost not seen evidence of. We certainly believe that an them anything, does it, but it does have an impact on independent commission made up of employer, employers? trade union and independent commissioners who Mr Cridland: It certainly has had an impact on are academics should make an independent employers. I would not claim for a moment, and I judgment of what the economy can bear and that mentioned earlier the diVerence between macro this minimum wage should not be a political figures and micro figures . . . Just because the ONS’s football, as it is in the US, where it essentially figures show that there is growth in a sector that is becomes a party-political issue once in a while. Nor 3055811001 Page Type [E] 13-05-05 22:42:14 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry should it follow the model that it follows in some Mr Cridland: If we accept that a commission should continental European countries of a formulaic make an expert judgment based on evidence from all increase related to average earnings or other forms parts of the community as to what is the appropriate of indicators which are not sensitive to changes in level, then I think we have to have a starting point the economic cycle. So at the moment we feel the which says that a minimum wage may have to come Commission is working well for business. down as well as go up if there was real evidence that it was being counterproductive to particular groups Q111 Mr Evans: Finally, what do you think of workers. Let me give you an example of that. On 1 the impact would be on unemployment if the October, for the first time, we brought in a minimum TUC’s recommendation of £6.00 by 2006 was wage for 16 and 17 year olds. That is a step into the implemented? unknown. It is one, again, that the CBI was quite Mr Cridland: I think that would have a very content to support, but its impact is very diYcult to detrimental impact on low pay sectors. One of the understand. If, talking speculatively, there was real biggest challenges we have with the minimum wage evidence that this had been detrimental to the is Parliament decided we would have a single employment interests of teenagers, then we may national figure. So in my deliberations on the Low have to do something about that, but I think it is an Pay Commission I have to set a figure or recommend “in principle” answer to your question. I think in a figure which will work in Derry as well as in practice we want to avoid a situation where we push Central London, that is as meaningful in Newcastle the minimum wage up too high in the first place. as it is on the south coast of England; and diVerent labour markets have diVerent needs. At the moment Q114 Chairman: I know you talked a lot about the I think we are getting close to a level at which the Working Time Directive, but, as it is on the sheet minimum wage is doing the maximum good it can that we are meant to ask you, let me ask you. The for low paid workers before it starts putting people TUC’s point of view on the Working Time Directive out of business. I would want to see the impact of is that we need it to be fully implemented with no these two 7% increases over the next year. So I stand opt-outs because people are working for slave by what I said earlier. CBI is not standing up and labour wages or less than adequate wages here in the saying the minimum wage is too high, the CBI has UK, and therefore the overtime merely tops them up acquiesced in the increases that there have been to to a reasonable level. How much truth do you think date, but we are saying that the jury is out on the there is in that argument? £4.85 increase. Let’s see how that goes, but two 7% Mr Cridland: It is not an argument I recognise increases are taking us closer to the buVers. I think visiting companies on the ground. I think the TUC the CBI view would be the sort of figures we have are going to find it very challenging if they were to heard from some trade unions move away from the succeed in having the opt-out removed, and if we intention to have the minimum wage as a floor under lose it we will lose it because the UK Government is wages and bring it into the area of tax benefits, which overruled by its European partners, not because of is not the appropriate area for a minimum wage and any decision of a democratically elected Parliament would be counterproductive, particularly to youth in this country. If we were to lose the opt-out I think employment, to women returners and to those for the trade unions are going to find it very hard to whom the scarring eVects of unemployment are explain to their members why they have lost most serious. overtime and why they are taking home less money at the end of the week. If I were a trade union Q112 Chairman: You used the expression “reaching member I would find that a curious reason to have a the buVers”. You said earlier that part of the shop steward negotiate on my behalf. attractiveness of the national minimum wage for your organisation has been the gradual Q115 Mr Hoyle: You have mentioned flexibility and improvement above inflation. Do you anticipate it you have answered part of the question about pay, arriving at a plateau and then it would attract wage and you have said there are a lot of benefits for inflation, or would it attract price inflation? employers in flexible working arrangements. I just Mr Cridland: We do not think we are yet near a point wonder, the Secretary of State made some new where we could adopt a strictly formulaic approach; announcements about the extensions of pay to we think a judgment based on the assessment of the maternity leave and greater paternity leave economy is still very much in the interests of entitlement. What are your views on that as to everyone. There is one very important thing to whether that comes under flexible working remember here. We have had a long run of economic conditions? growth; we have not had to live with the minimum Mr Cridland: We are quite prepared to engage in wage being increased in a period of recession or these discussions. As my colleague, Neil Bentley, downturn in the economy; so at the moment I think mentioned a few minutes ago, I think there is a quid we are still testing out where those buVers are and a pro quo for employers. We need a quid pro quo if formulaic approach would be counterproductive. there is to be an extension to the arrangements, and that comes back to Neil’s point about notice period. Q113 Miss Kirkbride: On that point, would it be I was with one of our small manufacturing appropriate in terms of recession to cut the companies very recently. The owner was deeply minimum wage and would that be your advice to frustrated: he had a four-person unit where one government? person had gone on maternity leave. The person had 3055811001 Page Type [O] 13-05-05 22:42:14 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry stressed it was her intention to return and return permanent worker who happens to be at the next quite quickly, but obviously that was a matter for desk, removes pretty much the whole reason why an her, not for him. He therefore had taken the decision employer uses an agency, and it would kill the with the other three members of the unit not to seek agency market in the UK. So we support the to replace her. The other three members of the unit principle of the directive, we support the fact it is had therefore worked doubly hard to try to cover. based on equal treatment, but we believe the After six months the individual said actually she now appropriate comparator is the agency’s work force, felt she would stay oV for the year. At that point he not the host business. For us, therefore, the current recruited a temp because they could not go on on directive which would apply the comparator with that basis. That temp had not worked out very well, the host business after six weeks is wholly did not have the right skill levels, he had had to let unacceptable, because after a six-week qualifying the temp go, but they continued on the expectation period any agency temp would need to have clearly the individual might return. At the end of the the same pay, terms and conditions as people in the year the individual said she was not going to return. host business. Our preferred route, therefore, is that Let me stress again, that is her entitlement. The only that threshold is pushed up significantly. We suggest problem with that is that the employer had had a a year. The reason we suggest a year is that would year during which his business operation had been cover agency work which is provided for maternity disrupted and he had three other colleagues who felt leave but it would prevent an employer simply they had done their bit to cover but had got pretty keeping somebody on an as an agency temp for a close to being exploited as well. All that employer very prolonged period in place of a permanent was asking for is that if a future government intends employment relationship. to extend these arrangements further or provide more funding support to make it more practicable V Q118 Linda Perham: I think you have actually said for women to have a full year o , the quid pro quo is you think it would significantly restrict labour that an employer should have more rights to have a market flexibility if that were the case, if it went serious dialogue with the individual about when they ahead in that form? might return so that they can plan sensibly whether Mr Cridland: Hugely. I am sometimes asked which to simply spread the work around or to put is the more important of the two, the Agency somebody in place on a fixed term or agency basis. Directive or the Working Time Directive. It is a very At the moment they are not able to have that diYcult question to answer, but agency would dialogue; they do not feel they can open up that certainly be equal first. I think one of the surprises conversation. The Labour Party’s proposals in for CBI—and we keep learning in this job as well— terms of extended leave and enhanced payments for is that it is the high value-added businesses which are leave need to be balanced by greater rights for most concerned about agency work: chemical employers to know when somebody intends to engineering companies, automotive manufacturers, return. businesses that are dealing with peaks and troughs in demand by having, say, 10% of their workforce Q116 Mr Hoyle: Allowing for that, in general you agency temp which they are flexing very regularly in are supportive as long as there is an agreement order to protect the interests of the core workforce. reached? Those companies will simply not bother with agency Mr Cridland: Yes. workers if they have to take on the employment relationship. They do not want the hassle; it is not Q117Linda Perham: Going back to the Temporary their intention. What they would do, however, Agency Workers Directive which we have touched would not be good for employment because they on before, I think you said it was the nature not the would disappear. In our survey, we think, about principle of the proposal. Would you not agree that 400,000 agency temp assignments a year would disappear completely, but only 1% of our members the principle of it is that agency workers should get V the same security and rights as other members of the said that they would recruit an extra member of sta workforce? as a result of not being able to use agency workers. Mr Cridland: Yes, I would agree with that, but I So it would be entirely counterproductive. think for CBI the employer in that definition is the agency, not the host business within which the Q119 Judy Mallaber: As I asked the TUC I think agency temp may be allocated for a short period of should ask you as well what your position is on the time. I come back to my opening comment, that the employment status of home-workers, who can be reason host employers, user companies, make use of grossly exploited in their work and where the agency temps is a commercial one, not an employer or person giving them the work also employment one. They reach a commercial undercuts, what might be regarded unfairly, other arrangement with an employment agency, a more responsible employers. I wondered what the commercial arrangement whereby they outsource CBI’s view was on that? the employment relationship to the agency, then say Mr Bentley: We are also concerned about the status to that employer, “By the way, even though you of home-workers, because it is very much an issue have reached a commercial arrangement with an about the supply chain and the nature of how work employment agency, you have now got to is passed down through the supply chain. We said demonstrate that you are paying equal pay, equal last year that we were quite happy to sit down with terms and conditions to a full time worker”, a the DTI and look at this whole question of worker 3055811001 Page Type [E] 13-05-05 22:42:14 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry status and how it could be applied, but as yet we have unreasonably long hours, they presumably should not seen any outcome in terms of taking those not have any worse conditions. What in practical discussions forward, so we are waiting to see. terms are the real things you are scared of for those kinds of agency workers having the same rights as Q120 Judy Mallaber: Have you put forward any other workers? proposals yourself? Mr Cridland: I do agree with the points you make; I Mr Bentley: No. think they are perfectly valid. I come back to my point that this is essentially a commercial issue. It is Q121 Judy Mallaber: Do you have any ideas for like any other form of business outsourcing. Does it proposals you might put forward yourselves? pass an investment appraisal? If a company, BMW Mr Bentley: We need to take members’ views in making the Mini in Oxford can go to an employment terms of what the Government is proposing but, in agency and say, “To meet our variations in demand terms of how to deal with the issue, we would then we need X number of quality, highly skilled agency have to consult our members and get back to temps, probably engineers, maybe portfolio government on the basis of member views. workers. We need them this week for this demand Mr Cridland: I think the reason we have not taken a but we will not need them beyond the end of the direct lead on this is because we are back to that part month”, they will do that as a straight commercial of the labour market which is very hard to reach issue. If regulations tell them that they have to be where, frankly, without being pompous about CBI then responsible for the employment relationship— membership, CBI members are not employing those and answering your question I think is particularly people because they are several levels down the pay, that they have to maintain records on pay levels supply chain. I have come across this with the and pay them the same as other people working in minimum wage. You go to Leicester and you hold a their factory—they simply will not bother using the meeting with Asian women home-workers and their agency; they will source labour in other ways. So an representatives in the community about trying to important part of our labour market flexibility will ensure they are getting the minimum wage; you talk be lost. The problem with the directive is its to them about the work they are doing, and they are inappropriateness to the UK labour market. We stitching skirts or putting together umbrellas for have the biggest number of agency temps of any maybe 50p an hour, and it is disgraceful, but it is a European country. In Greece agency work is still part of the labour market that is very diYcult to illegal. In Italy it was only made legal a few years ago police. So I think within the CBI as an organisation and the market is still very small. Many other we do not have the competence to know what the European countries, particularly from the EU 15, answer is. We recognise the problem and we will ironically see this directive as a liberalising measure, work with the DTI to do whatever we can. whereas in the UK it would add more rigidity, for the reason I have explained. If the European Q122 Judy Mallaber: Have your members, from a Commission could be persuaded to place the member’s point of view as opposed to the employment relationship for all the factors we have employee’s point of view, expressed concern, talked about with the agency, and the agency then because obviously they will have a twofold has a strictly commercial relationship with the host relationship, one with those people supplying them business, other than that the host business, of who are working at home maybe at the end of their course, is always responsible for health and safety supply chain and, secondly, they could be in and, indeed, working time hours restrictions, but the businesses where they are getting undercut and are main employment relationship is with the agency, subject to exploitation? we would not have a problem with this directive Mr Cridland: Yes, there is that concern. going forward.

Q123 Judy Mallaber: So is that something your Q125 Miss Kirkbride: It is really interesting how you members have expressed concern about? see this. You are saying that the agencies will be Mr Cridland: Concern about unfair competition. destroyed by this directive, and, presumably from what you have said, slightly more at the top end of Q124 Richard Burden: On the agency thing, given skill levels. So where, in your opinion, will the you have said that on regulation generally it is businesses get the labour that they would otherwise important to focus on the practical implementation be employing via the agencies? Why is it that of things rather than theory, could I ask you: are not catastrophic? some of the threats to a lot of agency workers, not Mr Cridland: As I mentioned, only 1% of our threats to agency workers, the threats to respondents in our surveys say they will increase employment prospects of agency workers more in their core workforce. I think, by reducing prospects this region? For instance, if you take holidays, if for agency work, we will be more likely to extend somebody is working for six, seven weeks, if they working hours, because one of the consequences is were an employed worker they would not get much that they will ask people to do more overtime, which holiday but they might get a day or so pro rata. If is maybe not something that they would wish to do; you are talking about unfair dismissal they would they would much prefer to spread the work around, not be covered by it anyway. If you are talking about for sound business reasons. Also 50% of all agency redundancy, they would not be covered by it workers move into a permanent job within one year anyway. If you are talking about working of becoming an agency worker. It is good for the 3055811001 Page Type [O] 13-05-05 22:42:14 Pag Table: COENEW PPSysB Unit: PAG1

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2 November 2004 Confederation of British Industry individual to test out what sort of work they want to qualifying period for that to be as high as it possibly do; it is good for the employer as a probation period. can. Our preference is for a year. The more you bring So individuals will lose, core workers will probably that down the more you reduce opportunities for be asked to work more hours than they want to, the agency workers to no good end. Six weeks, which is business will have less flexibility, the agencies will see what the European Commission are stuck at, is a loss of business. I cannot see any gain. wholly and completely unacceptable.

Q127Chairman: One last question. What is the Q126 Mr Clapham: Just to get this straight, you attitude of the CBI towards the relevance and role of agree in principle, but where you are disagreeing is trade unions in the 21st century? For 20 marks! on the period of time, the six weeks. A little earlier Mr Cridland: We leave it to our member companies you used the period of a year, but, given the nature to make their own decision on whether they wish to of temporary work, where it tends to be little above work with trade unions. Some do, some do not. As three months, would it not be possible to reduce that we heard earlier, the trade union representation in period to say a six-month period? Would you agree the private sector is now less than 20%, so most CBI with a six-month period? members are not working with trade unions because Mr Cridland: The reason our policy is for a year is to trade unions are simply not there. We are not an try to get some alignment with the debate on anti-trade union organisation; there are many CBI maternity, because a lot of small businesses use members who work very successfully with trade agency workers as temp cover when key skilled unions. What we learn from the experience of those employees, if they want to come back, are away, and successes is that, just as employers have needed to if the small business was faced with half of that modernise, to face the realities of a globalised period, it being a commercial relationship with the economy, unions need to do too, and unions which agency, but the other half being an employment modernise and work with businesses in the interests relationship, they will find that very diYcult to of their union members are going to be relevant to accommodate; but, clearly—we are a pragmatic their employers. Unions which do not, unions which organisation—if there is scope for any negotiation try to turn the clock back, are not going to be on this, our starting point is it should not be a relevant to the modern labour market. comparator with the host business, it should be Chairman: On that note we will finish. Thank you a comparator within the agency. If it is to be a very much for your evidence. We will be back to you comparator within the host business, we want the if there are any points of detail. 305581PAG2 Page Type [SE] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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Tuesday 30 November 2004

Members present:

Mr Martin O’Neill, in the Chair

Mr Michael Clapham Judy Mallaber Mr Nigel Evans Sir Robert Smith Mr Lindsay Hoyle

Witnesses: Miss Emmeline Owens, Principal Policy Adviser, Mr Lewis Sidnick, Employment Policy Adviser and Mr Francis Toye, Managing Director of Unilink Systems and Software, British Chambers of Commerce, examined.

Q128 Chairman: Good morning. Miss Owens, Mr Sidnick: I think that the reason that the growth perhaps you could introduce your colleagues and we in UK economy is higher than in any other EU will get started. country is because we have a much more flexible Miss Owens: I am Emmeline Owens, Principal labour market; the reason that our businesses are Policy Adviser at the British Chambers of competing successfully globally is because we are Commerce. On my right is Lewis Sidnick, our monitoring the burdens and we are trying to keep the Employment Policy Adviser and to my left is Francis cost of the burdens down. We are trying to keep the Toye, Managing Director of Unilink Systems and flexibility where other EU countries—for example, Software. Germany and France—have more restrictions on working hours and their businesses cannot compete Q129 Chairman: I would like to start this morning as successfully. It is no coincidence that the UK has with the Burdens Barometer. Maybe you could tell the strongest economic growth in the EU zone. us how it is calculated and are there are any applications or any similar calculations done across Q132 Chairman: How does such an obvious truth— Europe for similar burdens and how they are dealt if it is true—evade the concerns of the Germans and with? the French? Miss Owens: The Burdens Barometer, the £30 billion Mr Sidnick: Our concern is to make sure that the that we actually use, is the cost of 35 major UK economy is competitive and they are now regulations in the UK ranging obviously from the recognising increasingly the importance of a flexible Working Time Directive through to a range of labour market. In France they have had a 35-hour environment regulations and other employment working week and they are realising the restrictions regulations since 1998. So far as I am aware, the that is putting on their business environment and are Regulatory Impact Assessment System we would now trying to go back on their 35-hour working like to see rolled out across the EU. Particularly a week. There is a similar situation in Germany. figure that we use—£30 billion—does not actually I think increasingly other EU countries are include the cost of specific policy introductions like recognising the importance of a flexible labour the National Minimum Wage; that is a separate market and are, in a sense, trying to catch up with the figure of around £13 billion so far as I am aware since UK in that regard. it has been implemented, the actual policy cost. Having said that, our RIA database of 900 Q133 Chairman: Do you think that this is the biggest regulations builds upon this; this is the cost of 35 single problem facing small businesses in Britain? major regulations to business and it has been Mr Sidnick: I think the burden of red tape and increasing year-on-year since 1998. regulation is the biggest single problem.

Q130 Chairman: Why do you think it has not been Q134 Chairman: Greater than taxation? done in Europe? Mr Sidnick: At the moment our taxation rates are Miss Owens: It is something that we are looking to relatively favourable and currently in the last three see rolled out. Obviously various cost and benefit to five years the cost of regulation is the area that has analyses have been done, certainly in the UK; 40% rocketed. That is what our business members are of these Regulatory Impact Assessments come from saying is their biggest concern, the rising concern of the EU legislation. red tape. Our figure shows £30 billion extra costs since 1997. Q131 Chairman: Do you not think it may be the case that in fact the Europeans have a rather more Q135 Chairman: One of the things that could be balanced attitude to this than you have and that they charged against small businesses is that their policies think that regulation in itself, although it may be a for the development of skills across the board is not cost, it may also be a benefit and therefore to be put very progressive and not very well developed. We in this rather biased fashion is perhaps not a often hear about problems relating to skills particularly helpful way of looking at the costs on shortage. How significant do you think that is in in business. terms of the performance of your members? 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 British Chambers of Commerce

Mr Sidnick: It is extremely significant. Our quarterly Mr Sidnick: £12.68 billion is employment and the economic survey—which is the largest survey of its rest up to the £30 billion is non-employment. kind—of 6,000 businesses each quarter has shown that in the last 10 years the number of employers Q140 Chairman: How much of the £12.68 billion with recruitment diYculties has actually doubled would you regard as acceptable? You have taken since 1994. The skills problem is a big issue but we out the National Minimum Wage, what about need to address that and the Government is going in provisions for four weeks holiday per year, 20 days? the right direction to address it. However, if that is Would you regard that as a burden? addressed it is not an open ticket to increase Mr Sidnick: No. We obviously support paid regulation and look to solve the productivity holiday. problem through that means. Q141 Chairman: How much does that cost? Q136 Chairman: Within your surveys have you tried Mr Sidnick: The Working Time Directive to distinguish between shortage of labour as against regulations that we have . . . shortage of skilled labour? Mr Sidnick: A distinction between skilled labour Q142 Chairman: I am sorry, but I do not want a and labour? global sum because the Working Time Directive has a number of elements, not all of which I would Q137Chairman: There are some people who look imagine you would reject. Let us just stick with the for employees in the service industries where if they 20 days. How much would that cost? can breathe and get out of bed in the morning they Mr Sidnick: I do not know an exact figure for the 20 are eligible for employment. There are others who days in isolation, but a figure for the Working Time require perhaps lab skills, engineering skills and as a whole is approximately £11 billion. the like. Mr Sidnick: There is a big problem with basic skills Q143 Chairman: So if you took the Working Time in the UK and that is an area which needs to be Directive out of the £12.68 billion you would be left addressed. However, the real problem that with £1.68 billion. businesses are complaining about are high level Mr Sidnick: Yes. skills. It is not just the ability to communicate and operate computers and read and write properly; it is Q144 Chairman: But you have not broken up the high-level skills and that is why we need more Working Time Directive into its constituent parts businesses to undertake apprentices. We need a which you concede yourself not all of which are bad greater focus on vocational education through the or unacceptable. system. If we do improve our current skills shortage Mr Sidnick: Often when you look at regulations in our businesses would not say that is a ticket to isolation then they can be seen to be acceptable but impose more regulation. not when you look at the total across the board. Mr Toye: In our current financial year—admittedly Q138 Chairman: I am sorry, I think you are it may be exceptional—the maternity regulations misunderstanding. I am not trying to argue that if will cost us more than our corporation tax. you solve one problem you then over-burden people with another. I am just saying that I am surprised Q145 Chairman: That may be a reflection on your that a business organisation like yours should be so profitability. obsessed with the regulation that issues of training Mr Toye: It might be, yes; I accept that. However, and taxation which one would have thought would you asked the question why there was the concern be central to the delivery of the service or the goods about the regulation and so it does help to put it into that the business is set up to provide, that somehow the same order of magnitude. these should be a poor second or third in any list Chairman: I think what we are trying to do is get a against regulation. picture of the scale of the problem in relation to what Mr Sidnick: Regulation is our big issue because it is was once perhaps a lower flexible labour market what our business members are saying is aVecting than it is now. Some might have argued that it was them. Skills is another top issue and there is a critical too flexible, that people had insuYcient rights and skills shortage in the UK which needs to be that the right to have four weeks holiday which addressed. These are two problems that are right up probably nobody in this room does not enjoy but a at the top. Yes, skills is a problem and the fact that number of people outside this room did not enjoy a number of employers with recruitment diYculties until fairly recently. I think that is where we might has doubled over the last 10 years shows the scale of have a cause for concern. the problem. The biggest problem that our business members are saying is the increasing tide of Q146 Mr Clapham: If I could just quickly follow on regulation that they are having to pay for. from the Chairman’s questioning with regard to the cost of regulation, I note in your submission you Q139 Sir Robert Smith: One question on the refer to the costs of various regulations but there is Burdens Barometer: it would be fair to say from little reference—or no reference—to the benefits that your figures I think that the bulk of the burdens are come. Is that something that you have calculated non-employment. 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Miss Owens: I think it says in our submission that Q152 Mr Evans: That is what I am talking about. looking at 135 Regulatory Impact Assessments over Mr Sidnick: We did a survey of 1,200 businesses— the course of the year to April this year, that we the largest survey on employment this year—across determined that the benefits would not outweigh the the country and the majority of respondents said costs. That was through our own calculation on the that if the UK’s opt-out of the Working Time Regulatory Impact Assessment. Directive was lost it would adversely impact on their business. Q147Mr Clapham: So there are obviously benefits that come from regulation but you are saying that on Q153 Mr Evans: Did they address the flexibility that a cost benefit analysis the cost outweighs the others. is contained within averaging? Miss Owens: On those particular Regulatory Impact Mr Sidnick: If the reference period is extended to Assessments, yes. average it out to a year then that would help, but the key which our business members are saying is that they need to retain total flexibility to control Q148 Mr Clapham: Given the fact that we were told working hours and they do not want to apply when taking evidence from the TUC that we in the reference periods and have to calculate the burden of UK have less regulation than any other OECD the admin. The key point on this is that it is country and yet we see the OECD countries with employees as well who are saying to us, and our quite robust economies, does that not suggest that members employ five million employees, which is there are better ways of managing regulation? 30% of the UK workforce, and they are saying they Miss Owens: Obviously our regulatory burden has want to have the right to work longer to earn more increased since 1998, but I think if we look at some money. other European Union countries—for example Germany who are looking to de-regulate and countries like Spain who are introducing more Q154 Mr Evans: So it is the people themselves who flexible rights in the terms of agency work and are making a noise, not just the businesses. looking at their agency market—we are moving in a Mr Sidnick: That is right. When we did our survey slightly opposite direction. we had a lot of employers who submitted responses from their employees and they were saying that they do not want to cut their working hours; they want to Q149 Mr Clapham: You mention Germany, but in be free to work beyond 48 hours if they are paid de-regulating are they likely to move to what is properly which, of course, we would support. called flexicurity so whilst they de-regulate and move to greater flexibility at the same time they have built- Q155 Mr Evans: That takes me back to the in security? Chairman’s point initially about burdens, there are Miss Owens: We are obviously not against security no opt-outs in a number of other European Union in that respect but if you take the example of fixed countries so does this mean that they are at a term workers’ rights in Germany, they are looking to disadvantage or does this mean that, as is famous— liberalise some of the rules surrounding fixed term almost folklore—with these things, they sign up to work. That is going against the trend in terms of them and then just turn a blind eye to it. some of the legislation that we have brought in in the Mr Toye: If I could add to that, we import products UK in recent years. from France and I rang up my colleague in France at seven o’clock in the evening—eight o’clock their Q150 Mr Clapham: So you would accept that if we time—and they are still working there so it is are going stimulate and motivate a workforce in a obviously a short week or very long hours over a way in which it is conducive to creativity, to working couple of days; one or the other. together in partnership with their employer, we need regulations? Q156 Mr Evans: So do you suspect that they have Miss Owens: We are not against certain regulations signed up to it and are ignoring it whereas if we end per se. We have not opposed, for example, the the opt-out we will enforce it rigidly. Minimum Wage and certain aspects of Working Mr Toye: Yes. Time; it is more the implementation of those regulations and the increase in costs over time, for Q157Mr Evans: Therefore it is not that Britain has example the 7.5% rise in the Minimum Wage shows. an advantage at the moment, if we end the opt-out It is the increasing burden, the accumulative burden there will be a complete disadvantage to British firms and the administration regulation that we are and businesses and employees. opposed to. Mr Toye: I do not want to imply, though, that we get near that 48 hour week either; we do not generally, Q151 Mr Evans: I am not a fan of the Working Time it is only if we have a major project on and is a very Directive because of all the things that we say about temporary situation. But yes, I think it is ignored in flexibility, but do you not think that in the averaging other countries. within the Working Time Directive that there is Mr Sidnick: It is often said that we work longer and suYcient flexibility for that not to hamper business? we are working harder, but working hours in the UK Mr Sidnick: I think the key issue on the Working are actually declining. The average working week Time Directive is the opt-out from the 48 hour has been reduced by one hour since 1997. In terms maximum working week. of health and safety—which is what this directive is 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 British Chambers of Commerce based on—the UK has the third best record in health Q164 Chairman: What about Denmark. That is a and safety in the entire EU. We do not have health small economy admittedly but has very high levels of and safety problems then we should be free to work economic performance but also has high levels of the hours we want. That is the message. regulation. Mr Sidnick: But then you can refer to the US which Q158 Chairman: In your surveys have you tried to has a stronger economy and low regulation. assess how many of your members would be aVected by the removal of the Working Time Directive opt- Q165 Chairman: So you could say that it is very out? diYcult to draw any conclusions from the Mr Sidnick: Our survey asked if it would adversely information. impact upon your business if the opt-out was Mr Sidnick: I think it is broadly accepted that if you removed and 52% said yes. Within the production impose the high levels of regulation there will be a and manufacturing sector 62% said yes. The point where it starts to aVect your competitiveness. majority are fearful that it would aVect their business if it were removed. Q166 Chairman: All I am saying is that there are examples—the US one and the Danish one—and it Q159 Chairman: How does that stack up against seems that there are others who might well be national statistics? I suspect that your survey is a struggling for other reasons altogether. self-selecting sample. Is that correct? Mr Sidnick: Yes, that is true. Mr Sidnick: It is a survey that went to the 60 Mr Toye: The eVect of some of these regulations will Chambers across the country and they send the definitely change the UK scene in a way to make it survey to their members, so it covers all business slightly harder and more expensive for business. I sizes and sectors but there is a degree of random on have two female employees pregnant and I have two who responds. expectant fathers which amounts to about 20% of our workforce. We can see the cost of these Q160 Chairman: There is also a degree of self- regulations. I am pleased that we have this from a selection in the sense that you can decide whether or paternal point of view, but if, for example, maternity not you wish to send it back. is extended from six to 12 months we do see genuine Mr Sidnick: Yes. eVects on our business.

Q161 Chairman: It is no diVerent from the Daily Q167Chairman: Have you any idea of how many Mirror asking, “Should Becks stay married to his employees are already working on average 48 hours wife?” or something like that, so there is a certain a week or less, extrapolating from your wide-ranging statistical concern about self-selecting samples. albeit self-selective sample? Mr Sidnick: Yes there is, but when such powerful Mr Sidnick: There are some government statistics on messages come back—for example the majority on the labour force survey but I do not have those to Minimum Wage, 80% say they want a cap now; on hand. It is a sizeable number. I could write to you maternity 83% are opposed to extending payment to with those. twelve months—that sends a message. You can question the reliability of statistics as always. Q168 Chairman: What I am trying to get at is what surprises me is your obsession with this issue. I can Q162 Chairman: Basically what you are telling us is understand parental leave concerns; these are that you do not really have accurate statistics about perfectly understandable. As far as the other ones, I the number of your members who would be aVected just wonder if it is quite as big an issue as you would by the Working Time Directive opt-out. have us believe. I know it is administratively a pain Mr Sidnick: Not of our entire membership but we in the neck—a lot of things are—but this seems to be have a sample. an easy target to shoot at rather than a big problem and the two might not necessarily be the same. Q163 Chairman: We have already agreed that there Mr Sidnick: It is the issue that our business members is a diYculty with the quality of the sample. It may keep coming back to us on so we take what they say. be that everybody who is concerned has written in and that is fine, but we still do not know that for sure Q169 Sir Robert Smith: What is the response rate to so that to base your arguments on samples of this the survey? One goes to every member of the nature is, to say the least, statistically dubious. You Chamber through the network. cannot tell me in any accurate way the number of Mr Sidnick: Yes. people who would be aVected by the removal of the opt-out; you just know a lot of people do not like the Q170 Sir Robert Smith: How many come back? idea of having it removed. Mr Sidnick: On this survey 1,200 responded but it is Mr Sidnick: It depends on the way you look at hard to gauge how many were actually sent out. It is the statistics, but what is true is that the UK has the up to each Chamber itself to send it to their members strongest economy in Europe and we also have the so we do not have a response rate figure. It is sent to most flexible labour market in Europe. Those two all Chambers and they send out a certain number. together would suggest that things like the Working Time opt-our and the Minimum Wage and other Q171 Sir Robert Smith: Do they not send it to all regulations do play a role. I think that is the point. their members? 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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Mr Sidnick: No. average earnings growth. There was also a rise in 2001 or 2002 of 10%, three times average earnings Q172 Chairman: Is there a method of establishing growth. It has now got to the stage where many who gets sent it and who does not? businesses recruit at a level and around the National Mr Toye: It is a website and we just get an email; we Minimum Wage, and around £5, and those are the do not know necessarily what the survey is about. businesses that are saying to us that this is a problem. You just pull up the website and answer the It is having an impact on diVerentials further up the questions. chain and it is also becoming an issue for employers who do not want to be seen necessarily as a Q173 Chairman: So first you have to be on the net; Minimum Wage employer but may have no choice. secondly you have to be interested enough to fill it in; thirdly, surprisingly enough since it is on the web, Q179 Mr Hoyle: How does that go and how do you you do not keep statistics as to where they come run it past your own mind when you think 10%, 8% from and which parts of the country and what of £4, yet the same people are saying to you. “We numbers? don’t like this” but then having 20%, 25% on Mr Sidnick: We do have that; we know the £200,000 a year. Do you not think there is a whiV of percentage from each region. hypocrisy in that? Miss Owens: Our main constituency of businesses Q174 Chairman: What does that mean, a percentage employ between 50 and 100 people. They are SMEs from each region? and obviously dependent on the sector—care home Mr Sidnick: We do know how many survey sector, retail sector, manufacturing sector—and responses each Chamber sends us back. they are employing people in and around the rate of the National Minimum Wage and if it is not that Q175 Chairman: But you do not know how many now it soon will be. members they have in each region. Mr Sidnick: Yes we do, but it is up to each Chamber Q180 Mr Hoyle: You have not answered the of Commerce to send it to their members as they question. Do you not think there is a whiV of wish. hypocrisy? The same people who are saying, “We don’t like paying this Minimum Wage increase at the Q176 Chairman: So it is put out on their website lowest of low wages”, yet they are the same people rather than on the national BCC one? who are usually taking 10 and 20% increases on Mr Sidnick: It is on both and also a paper version is £200,000 a year. How does that match? What do you sent as well. All forms are used. say to them? Miss Owens: If you look at average earnings growth Q177 Chairman: If you were really bloody-minded it is not 10 or 20% and if you look at some of the you could do all three. increases in executive pay some of them have been Mr Sidnick: I would imagine you would only reply high but, as I say, average earnings growth in this once. I think a survey of 1,200 business does give an country is about 3%—it is actually higher in the indication of what the current environment is. Our public sector than it is in the private sector which QES of over 6,000 is the largest survey in the UK, so actually bumps it up—and if we are looking at over 6,000 businesses each quarter which is reliable National Minimum Wage increases at double that, evidence. it is not in line with the rest of the economy. Chairman: I think we will move on, Mr Sidnick. All I would say is that if I had to depend on that methodology for canvassing my constituents at Q181 Mr Hoyle: But also I think there is always the election time I would not have been here for the last fact it has to be taken into account that if you are in 25 years. That is all I can say. manufacturing and you are paying a reasonable wage and you have a competitor who will always be dragging on the bottom, you are always at a Q178 Mr Hoyle: You have obviously touched on the disadvantage. Surely we ought to be forcing those up National Minimum Wage and I think like to make sure that the good employers are not everybody I would like to congratulate the success of suVering from bad competition because they are not the Minimum Wage since it has been introduced, but paying real wages. I think now the question is why do you think Miss Owens: I think we have got to the stage now organisations feel that it ought to be limited, either with the National Minimum Wage that many more capped or in line with inflation? It is the same businesses are paying around that level. It is not just sceptics, presumably, who said that the Minimum those employees who are being bumped up who are Wage will not be successful, it will be detrimental to being aVected. Pressure and diVerentials across the businesses, businesses will fold overnight. That board mean that business costs have increased never happened; it still has not happened. What tremendously. That has come through to us in our would you like to say? survey but also through talking to businesses. Miss Owens: We are not opposed in principle to the Minimum Wage. When it was introduced in 1999 at £3.60 it was seen as a reasonable rate to have, but Q182 Mr Hoyle: But good employers and good rises in recent years—the last couple of rises at 7.5% businesses are paying above the Minimum Wage this year and last year—are more than double the and the fact that the competition is always coming 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 British Chambers of Commerce from those who want to pay the least, surely the Mr Toye: No, I am not. I just have to be aware of good employers benefit from having the Minimum where our cost level is, that is all, where the general Wage increase. cost level is because our suppliers will be paying Miss Owens: Many are paying in and around the minimum rates for some things so it increases our Minimum Wage and frankly it is not something we costs. object to at all. We want a Minimum Wage to prevent exploitation. We are happy with the Minimum Wage for 16 and 17 year olds at around Q190 Mr Hoyle: But overall you think it has been a £3 an hour that was introduced in October this year. good success story, the Minimum Wage. Mr Toye: Yes. Q183 Mr Hoyle: What do you think for an adult with a family? Q191 Chairman: What was the original attitude of Miss Owens: Increasingly members are telling us the BCC to the National Minimum Wage? that they do not want to see a Minimum Wage Mr Sidnick: We supported the introduction of the above £5. Minimum Wage as long as it is set at the right level and the level in 1999 was seen as reasonable Q184 Mr Hoyle: What do you think is a fair rate for but the level now is creeping to become more a family person? unmanageable. Miss Owens: At the moment in terms of the Minimum Wage our members are saying to us that Q192 Chairman: It has been suggested to me—and I they do not want to see a Minimum Wage above £5. only have anecdotal evidence of this—that small, local employers in my constituency (people in the Q185 Mr Hoyle: Do you agree with that? catering industry, for example) say, “We like to keep Miss Owens: That is the BCC position, yes. to the Minimum Wage but what we need is time to get that and therefore we appreciate when the Q186 Mr Hoyle: What about those employers whom Commission announces that it will be 15 months or you represent who pay quite a bit above the 18 months before the next increase”. They then say Minimum Wage whose competition is coming from they can accommodate it. What I am at a loss to see those at the bottom end? How do you justify it? is that you have gone on a bit about diVerentials but Miss Owens: Those who pay above the Minimum I am trying to think of low paid companies that have Wage have to bump up diVerentials for their quite complicated salary scales. Do you normally employees; they have to bump up the amount their have a lot of people getting paid the National employees are being paid above the Minimum Wage Minimum Wage and a couple of management because they do not want to be seen necessarily as a grades maybe far higher above that, but it is a fairly Minimum Wage employer. They have to raise their flat company structure when you are talking about hourly rate as well. very low paid industries, is it not? Miss Owens: I think, for example in the retail sector, Q187Mr Hoyle: So you think there is benefit in the there are a range of wage rates and certainly when Government not subsiding people who are not being we have submitted evidence to the Low Pay paid a real wage through tax credits through all the Commission it has come back that several pay rates other benefits that have to be paid. have been impacted on and these low costs are Mr Toye: I can see all your points. We pay associated with each level on the pay scale. everybody significantly above the Minimum Wage but our competition—and I receive at least one email a week—is to send our software development Q193 Chairman: We have never had any expressions to India where rates are much lower. of concern from the Tescos or the Asdas of this world which would tend, on the scale of their operation, to have more in the way of rates that Q188 Mr Hoyle: You are not suggesting, are you, would result in there being a diVerentials problem. that we compete with the wages of a third world As I understand it, the only part of the British country because that is where we came from in the economy where this diVerentials issue has come out beginning. We know we cannot compete with third has been in care homes. If you have six people on five world wages or would ever want to compete I am diVerent rates then maybe you have something sure—we had better put this on the record—that wrong with your business structure but if you have your organisation do not want to compete in the 50 people and they are doing a variety of jobs there third world. Mr Toye: Many of our competitors have already might be a problem there. What sort of businesses are we really talking about here when we talk about outsourced their software development to those V places. di erentials? Miss Owens: In the retail industry we have had also examples of this impact on diVerentials. Q189 Mr Hoyle: Can I just clear this up because I think it is important for the record? Are you suggesting that we should pay the same rates as Q194 Chairman: Maybe you could send us some India? evidence on that. 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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Miss Owens: Yes, of course. Q199 Mr Clapham: So your flexibility refers to a kind of structural flexibility of core and peripheral Q195 Chairman: The other thing, of course, is that it workers where you have the core workers on maybe could be argued that the Commission does operate a 40 hour contract but then you are able to apply on a kind of suck it and see process. Is your view that flexibility through that in diVerent proportions. they have got it wrong already, that a fiver a week is Mr Toye: Yes. too high? Or that the 8.5% rise which is envisaged for October of next year is going to be a step too far? Is Q200 Mr Clapham: But the people who are on part- it a problem at the moment for most of your time working will fit in to ensure that you are able to members or is likely to become a problem next year? produce in the way in which you want to produce Miss Owens: Using the example of the last two rises and would be on similar terms and conditions to we have asked the question, “Will it aVect your competitiveness? Will it have an impact on staYng those who are employed full-time. levels?” It has come back at over 50% saying that Mr Toye: They are in exactly the same position. We rises in the round of 7.5% or higher would certainly were encouraged to do this by flexible working and have that impact. It has also come back that some we do not see why that should be made regulatory. form of cap would be preferable. We are doing it anyway and a lot of good employers are. That would be our argument. We do not need the regulation in order to do this. Q196 Mr Clapham: Could I just explore this argument of flexibility a little further? The real aim of your argument seems to be that there should be no Q201 Mr Clapham: If we moved to a situation where regulation at all and no regulation would add to we did not need any regulation but we were able to greater flexibility. Is that correct? That seems to be achieve an understanding of what was required—the what you are saying. Mr Sidnick referred earlier to norm, should we say, of working—via negotiation, the surveys that have been done. Is there any that would create a situation of industrial information coming in from the surveys that you democracy as, for example, people wrote about in have conducted which show that that is precisely the 1960s, people like Allan Flanders. However, the what your members want: non-regulatory very fact that the industrial democracy (which flexibility? academics thought was being constructed in the Mr Sidnick: It is not about having no regulation; 1960s and 1970s) was wiped away after Mrs there is a need for regulation and there is a need to Thatcher came to power would tend to suggest that protect employees’ rights. What our survey is without regulation you can never really have the showing is that the last three to five years have kind of enduring stability. Would you agree with shown a significant increase in the amount of that? regulation across a range of areas and that increase Miss Owens: A lot of these regulations we are not is now becoming unmanageable. We have gone very opposed to per se. To use the example of Denmark, Y fast very quickly and it is becoming di cult. one of the great strengths of the UK economy is its labour market flexibility. To use the example of Q197Mr Clapham: Let us just take that a step skills, yes we are improving on skills and businesses further. For example, if there was little in terms of invest a lot in skills, I think more so than many other regulation in order to achieve flexibility we would be European Union Member States. However, skills moving into a situation where there would be greater and transport for example are problem areas for our collective bargaining. That would add to a situation economy so for labour market flexibility we need less of more industrial democracy. Would you agree that regulation. It is what enables businesses to increase the trade unions should be freed up in order to be to do business here and it is one of the attractions of able to bargain more freely in a situation where the UK economy, but increasingly we are seeing it regulation was reduced? no longer as attractive perhaps as it once was. Mr Toye: We have 25 staV. We do not have unions involved. That is not any design on our part. Q202 Mr Clapham: Would you agree that there was Q198 Mr Clapham: You may not have unions a multiplicity of combinations of flexible working? involved but the very fact that we have some 7.5 For example, one takes the construction industry: if million members of trade unions at the present time you had come through London this morning at six means that many of the terms and conditions and the o’clock you would have seen vans picking up foreign wage rates that trade unions negotiate actually filter workers to take them onto construction sites. They down to areas where there are no negotiations will be working as peripheral workers. In other taking place. industries we see, for example the service industry, it Mr Toye: I would accept that. I think it is quite good tends to be much more structured but nevertheless to have negotiation with your staV whether that be has core and peripheral workers. There is a need to unions or with staV representatives. That is implied be able to address diVerent situations in diVerent by flexibility. If I pick up one specific regulation, industries and therefore a need to be able to ensure flexible working, we now have four people working that the kind of regulations that are applied are less than five days a week, one of whom is a parent applied in a way that is going to create a kind of and the other three are not. I think that is a very harmony across the piece. Would you agree that the good thing and so do the staV involved. regulations that are required tend to be regulations 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 British Chambers of Commerce that need to be applied across the piece? There would UK employs 27% of the entire EU temporary agency be regulations that could be applied to the service workers so it would be particularly damaging to industry as well as the construction industry. the UK. Miss Owens: Obviously a lot of employment regulations do, yes. Q208 Mr Evans: What would you say to those who would say that coming up with these figures is Q203 Mr Clapham: So at the end of the day your similar to the sort of scare stories about the argument is not that we need no regulation, you are minimum wage? In essence this could come in, even saying that there needs to be less regulation. If there in its current form, and it will not actually have the needs to be less regulation which are the regulations impact that you suggest. which we need to ditch? Mr Sidnick: I say that we have to listen in advance Miss Owens: I think it is more the implementation to what businesses are saying. They run their regulation, the uncertainty of regulation, the businesses on a day to day basis; they employ accumulative burden. For example, 1 October was temporary workers and they are saying Red Tape Day, a number of regulations came in, overwhelmingly that this would lead to reduced businesses were telling us they were unaware of the hiring and would lead to job losses. I think we need ones on unfair dismissal because the guidance came to listen to the views of the businesses. out late in the summer. Initially they thought unfair dismissal was a three-stage process but it turned out Q209 Mr Evans: Would you therefore agree that to be a far lengthier process. It is the accumulative agency workers ought to get more rights but perhaps and administrative burden regulation rather than not the rights that are contained in the current regulations for example on part-time work or fixed- directive? time work. We would not be opposed to those Mr Sidnick: That they should not get the rights in regulations. the current directive after a six week period.

Q204 Mr Clapham: But you would agree that all the Q210 Mr Evans: What period should it be then? health and safety regulations that are in situ need to Mr Sidnick: We are currently calling for a 12 month be retained and probably enhanced. period with other business organisations. We think Miss Owens: Health and safety of course is a that would be a satisfactory period where, if you are diVerent area. We can get back to you on that. With working as a temporary agency worker for that long a lot of health and safety a bar is continually raised a period then you should have the same rights. That and that again is a problem for businesses. It is an would be a safe period. uncertainty issue. There is a certain level of regulation and then go back after a year or two and it is increased again, and that is the problem. Similarly Q211 Mr Evans: When your firms employ agency with some of the maternity and parental leave workers what is the average they employ them for? regulations we are seeing at the moment and the cost Is it six months? of the Minimum Wage. Mr Sidnick: It is a period of between three to six months. Q205 Mr Evans: Am I right in understanding that you are opposed to the Agency Workers Directive? Q212 Mr Evans: How many people would be Miss Owens: In its current form. covered by the 12 month period? Mr Sidnick: The 12 months would cover a large Q206 Mr Evans: Why is that? majority; the vast majority. Mr Sidnick: The UK has the largest agency market Mr Toye: We use them for recruitment. In other in the EU and the directive in its current form has words, we do not take people on permanently, we additional rights and responsibilities after a six week take them on as a temporary worker to see how they period of employment of the agency workers and the perform over two or three months and then if they majority of businesses employ temporary agency are successful we recruit them. workers for more than six weeks so it would have a huge impact on the employment of a large section of Q213 Mr Evans: Can you not tell after five weeks? the workforce. In the UK it would be particularly Mr Toye: We have thought about this and you do damaging because we use more temporary workers need a bit longer than that because people have not than any other EU country. learned enough about the job within a five week period. Q207Mr Evans: What is going to be the impact then? Q214 Mr Evans: You can tell if they are useless by Mr Sidnick: It is hard to assess. In a survey that we five weeks, though, can you not? did of 1,200 businesses 83% said it would lead to a Mr Toye: Yes. It is the borderline cases where you reduced hiring of temporary workers in the country. think somebody is going to learn a bit more and then So 83% of businesses who employ temporary agency actually take the job. Three to six months is a workers said they would have to employ less if the reasonable period. We recently took somebody on directive in its current form came in, which is a who we had had on temporary employment for three strong figure. I have actually got the figure here. The to four months. 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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Q215 Mr Evans: So you would not mind six months Mr Toye: Yes, there are diVerent groups of yourself, speaking for yourself. temporary workers, you are quite right. Mr Toye: I would not mind six months, no; that is a reasonable length of time. Q224 Chairman: For some it might be appropriate but for others it is not necessary. Q216 Mr Evans: Speaking as an employer again, if Mr Toye: Yes, in fact to say they are paid equally it comes in at six weeks what are you going to do? would actually be a disadvantage to some of these Mr Toye: We would probably make hard choices. people. Our recruitment would not be so easy. Q225 Chairman: Does your organisation have a Q217Mr Evans: People you might otherwise have view on that perception of the issue, Miss Owens? kept on you are just going to get rid of after six Miss Owens: From our perspective yes. From the weeks. business cost perspective we are not happy with six Mr Toye: If there is any doubt, yes. weeks, we would be happier with six to 12 months. At the same time it is flexibility on both sides. It is Q218 Chairman: What is the position at the moment not just an issue of pay necessarily. In Francis’ as far as the ability to dismiss people? As I industry maybe that is the case; in other industries it understand it you can do it without reference to a may not be the case that necessarily temporary tribunal in the first 12 months. Is that the case? workers earn a lot more. It is also an issue Miss Owens: Unfair dismissal rights come in at 12 concerning the labour market itself. A lot of people months. who come into temporary work are returning mothers, students looking for more permanent jobs. Q219 Chairman: Is it cheaper to employ agency staV It is very much seen as a route into the labour market or not? and if businesses are deciding that after six weeks the Mr Toye: It is more expensive actually because you cost of having a temporary worker goes up so much are paying an agency commission. It is actually that it is a disincentive to keep someone on, that is beneficial not to generally. a problem especially given the fact that we have the second highest rate of agency workers in the EU. Q220 Chairman: So is it maybe as much a matter for you using an agency that you are contracting out Q226 Chairman: What about the issue that perhaps some of the human resource function, given that you people deserve a bit of protection? are small business. Miss Owens: Agency workers do have a lot of rights Mr Toye: Yes. under current legislation. I think under Working Time as well as some of the maternity rights. Again, with unfair dismissal and others at 12 months we Q221 Chairman: The long list would be prepared by would very much like to see agency workers having the agency; you would then make that long list into rights along those lines. a short list. Mr Toye: Yes. Q227Chairman: But you would do away with the Q222 Chairman: I have heard it said that there is a Working Time Directive and you would do away group of workers in Britain who want to be mobile. with some of the more liberal maternity and They can make a lot of money between, say, October paternal rights. and January. They get through Christmas and then Miss Owens: We are not doing away with the current they want to go skiing for a couple of months regulations as such; we are objecting to extensions of because they have made big bucks. They come back paid parental leave and losing the Working Time after a few weeks and work for another two or three opt-out. months. They may well be in IT or specialist engineering work or things of that nature. They Q228 Chairman: You were objecting the last time actually have a lifestyle and they actually do not care they were introduced as well. about workers’ rights, but they are making big Miss Owens: We have not objected to the minimum bucks. Then there are the others who sign up because standards that have been introduced in recent times, they have to for a call centre or something like that. for example some of the maternity leave regulations Would you accept that there are diVering slices of or the Right to Request. What we have objected to the labour market? are the extensions of those regulations. Mr Toye: Absolutely. There are contract IT staV who earn more than full-time employed IT staV that Q229 Chairman: You are in favour of things we know of. happening so long as they do not improve. Mr Sidnick: We do not want to see an extension of Q223 Chairman: So sometimes we are not dealing maternity from six to 12 months or more legislation with the same things. Would you say that not only is to create rights to request flexible working, on the there a debate about time, it might also be about the Minimum Wage going up double national average quality of work or the rate of pay: that those who are earnings. We support flexible working but there earning a lot may not need to be given the same should be a right to flexible working. That is the rights as those who are at the lower end of the scale. message from our businesses members. 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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Chairman: I just have to say, chimneysweeps found (although workers can work beyond it). Put Charles Kingsley a bit of a bore, but that is planning-wise and employment-wise there needs to another story. be some form of defined area for businesses. Mr Toye: A default is useful to start the conversation, however that is not to say that some of Q230 Sir Robert Smith: You were talking about the our best workers are in their mid-fifties now so I employment side of your barometer and there was would not be at all surprised if they are working £1.68 billion that was not the Working Time beyond 65. We do not need a regulation to Directive. How much of that £1.68 billion is actually particularly change that one way or the other. The transposition of EU directives into UK law and how reality is, we cannot aVord any passengers whether much is UK-only burden of employment? they are 25 or 75. Miss Owens: I think our figures show around 40%. Q235 Sir Robert Smith: Do you not think that having that age is sending a signal that society is Q231 Sir Robert Smith: Of the £1.68 million? saying that at that point people are becoming Miss Owens: I will have to get back to you on that. unpredictable employees? Surely employees should be managed on their intrinsic abilities not on their Q232 Sir Robert Smith: One of the other things you age. are concerned about is the eVect of removing the Mr Toye: You can do it that way and if you do it that national retirement ages. Do you have evidence that way then you will have some dismissals of people all the workers have poor performance or is your over 65. That is an alternative way and actually I do main motivation that younger workers are cheaper not have a problem with that. to employ? What is the driving case against lifting Q236 Sir Robert Smith: In your submission you have the retirement age? come up with some figures of concerns to back up Miss Owens: Businesses have come back to us and your worries. You say, “It is estimated that said that they very much want the right to retain set employers could be faced with an extra £73 billion retirement ages. We consulted on 65, for example. worth of claims”. How do you calculate the Many normal retirement ages in companies are £73 billion? You relate it to 8,000 extra cases. lower than 65. The average I think is around 60. If Miss Owens: We looked at some estimates from you had a set retirement age for many employees it the United States where they abolished age would mean that they would be negotiating at a later discrimination or abolished retirement age in the stage with their employer. We are not opposed to 1980s. There was a large increase in tribunal claims. older workers in the workforce. In fact I think the UK has the third highest proportion of older Q237Sir Robert Smith: You put some figures in your workers in the EU. Our preferred option is for submission at paragraph 28 that I am trying to get employees to reach the age of 65 and come to some my head round. form of agreement with their employer to work Mr Sidnick: These figures are from the RIA beyond 65 and many do. consultation in consultation with the government figures of what would be the likely projection. They are government figures. Q233 Sir Robert Smith: How is that age chosen? Miss Owens: Obviously the consultation on the Age Q238 Sir Robert Smith: Have you edited it down? Discrimination legislation meant that the DTI £73 billion worth of claims and 8,000 extra cases. actually looked at something they called the Default You obviously have not got behind those figures. Retirement Age or Set Retirement Age from the Mr Sidnick: No. We took the data from the Government and we consulted our members on that government consultation. and 65 came back as a preferable option to abolishing all retirement ages. Q239 Sir Robert Smith: One of the big problems we keep hearing about is the skills shortage and presumably someone who has been working all their Q234 Sir Robert Smith: Surely in a well-managed lives and is still fit and healthy is a skilled asset. environment what is the purpose of setting an Mr Sidnick: An employer would want to keep on a arbitrary age when each person’s skills depends on good skilled worker, particularly because of the their own ability rather than their age? skills shortage. We would encourage that employees Miss Owens: As I say, we are not opposed to people and employers agree to work beyond the age of 65 if working beyond the age of 65. Our position is that there is agreement on both sides. the business needs to have some form of certainty to Chairman: Thank you very much. I think we will get be able to plan for future recruitment and to have back to you on one or two points, but thank you for some sort of point in the relationship defined your evidence this morning. 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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Witnesses: Mr Mike Emmott, Adviser, Employment Relations and Mrs Dianah Worman, Adviser, Diversity, Chartered Institute of Personnel and Development, examined.

Q240 Chairman: Good morning Mr Emmott and our competitors, not only in Europe. Is legislation Mrs Worman. Perhaps you could just give us a word part of that problem? I think not, Chairman. We do on the CIPD. It has gone through one or two not argue that legislation stands in the way of people changes, I think. It used to be the Instituted of acquiring skills or changing jobs. Personnel Management and things like that, but now you have your charter. Q242 Chairman: From what you are saying then the Mr Emmott: It goes from strength to strength, regulatory issue is not the one. One thing you did not Chairman. It is essentially the same body that was say in your description of the Institute is that you are always quite well known as the IPM or the Institute the body of human resource professionals, if I can of Personnel Management and at some point— put it that way. You are part of management; you probably rather more than 10 years ago—it merged are business people as well as being human resource with the Institute of Training and Development professionals. You can have the most gentle, white, because it was seen that the management and the liberal regime you like but if the bottom line does not development of people was really an activity that work you are out of a job. You might be the last, you was best looked at by that perspective rather than might be the second to last to switch oV the lights, with two discrete organisations. That then became V but nonetheless you are involved in that. As the Instituted of Personnel and Development. Geo managers do you think that we are maybe over Armstrong, our Director General, decided it would preoccupied with this regulatory burden stuV? help enhance our credibility and hopefully our Mr Emmott: When you ask our members—who are, influence if we were chartered. After long discussions Y as you say, business people—you get a mixed with the Privy Council O ce and consultation with response which is partly a business response and members that process was successfully completed partly reflects their background as people about three or four years ago. We are still the same management and development professionals. You body but our numbers have increased. We are tend to get support for the objectives of the currently around 120,000 members. We believe we legislation, for example, on the Right to Request or are the biggest organisation in Europe responsible even on Working Time, perhaps a hard case, where for the management and development of people. We it has always had a symbolic quality that employers have a commercial activity that supplements our identified it early on—and HR was not exempt from membership income subscriptions and we are this—as being disproportionate to any perceived therefore a relatively solid organisation. We do a lot problem. When we asked people back in the late of research and we respond to public policy 1990s, our HR members, what they thought of the consultations. Working Time legislation you got a vote in favour of: “We would like to see some pressure to reduce Q241 Chairman: I just thought it would be useful to Working Time” but when we said, “Do you like the have it on the record in that way because we know regulations?” the answer was, “Not at all; too the usual suspects in respect of small businesses, big bureaucratic”. I think when you ask members they businesses and people like that. In your submission will be critical, not necessarily critical of the you draw distinctions between diVerent elements of purposes of the legislation but critical of the way in labour market flexibility and I think in your which it is being implemented. It is a process estimation the UK does not do too badly. However, problem as much as it is a rights issue. People are not you have highlighted an area of what you call critical of the idea of rights; they believe in the idea of functional flexibility and you say that we do not do minimum rights, a platform of rights, a level playing as well there. Perhaps you could explain to us what field and so on. We are not hostile to legislation in you mean by functional flexibility and also whether principle but there are issues of cost which are real; or not regulation is the reason why we do not do as there are issues of clarity of purpose; there are issues well in this area as you think we could do given our of quality of guidance which DTI have been broad international performance. addressing and which we welcome. There are issues Mr Emmott: Hopefully I can give you quite a short of enforcement through tribunals and whether there answer. Functional flexibility we understand simply better, cheaper, faster and less destructive ways of as the ease with which individual employees shift resolving workplace conflicts. I am sorry it is not a their jobs, move from one job to another, acquire clean answer, but members are aware of the cost side new skills and become more eVective. Functional and also aware of the values and the benefits if you flexibility is something to do with job descriptions, get it right. It is an issue of the quality of the job design. There is not a major problem in that area regulation rather than its actual content. in the UK. Job descriptions have tended to become not redundant but they are much less significant; Q243 Judy Mallaber: You claim that much there is a lot more flexibility that management and regulation is unnecessary because most employers individual employees can exert to design or define do act in the best interest of their employees. If that their own jobs. Functional flexibility in the sense of is the case then why should regulation not be moving around, acquiring skills in the workplace is introduced to ensure that they all do? not a major issue. Insofar as it is an issue I think it is Mr Emmott: We do not object to legislation to pick at the level of education and training and the overall up the long tail; we accept that legislation is about macro situation that the UK workforce is not the exception rather than the rule and it is about perhaps as fully qualified as workforces in some of hard cases. I think the downside is that the people 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Chartered Institute of Personnel and Development who are doing the right thing anyway can find that elements of a business case which is where the legislation does not actually support good practice. thinking, pioneering organisations will already be in As an Institute we are very keen on good practice; we connection with good practice and so on because believe that employers—certainly our members— they understand the broader issues. Sometimes the want to implement legislation in a way which is drag eVects with organisations that have not quite consistent with doing good business. I do not think got it because their mindsets are in yesterday’s way there is a problem in accepting that in some areas of thinking and sometimes our members are there is abuse or some employers do not treat people indicating that they think law is helpful as a lever of very well. What we would assert is that treating change in some circumstances and in others it would people well is good business and we think that this not be, it might hinder. I think this crafting of law message is generally understood and increasingly and better regulation—designing things to actually endorsed by businesses. Businesses that do not treat help progress—is where we really need to be at. That people well tend to go out of business more certainly means that the legislation needs to be very well than the businesses that do treat people well. informed by those who are seeking to drive progress as well as those who are trying to hinder it and have Q244 Judy Mallaber: However, there are those bad a damage limitation mindset. employers. If you take the Winston Churchill quote on Minimum Wage: the bad employer undercuts the Q246 Mr Clapham: In your paper you suggest that good, the worst employer undercuts the bad. I am employment regulation is taking up a great deal of rather confused though. You are saying that management time and resources to the detriment of regulation is necessary for the good companies, but the individual company. Do you have any hard you cannot just say that only the bad companies evidence to back that up? would be regulated. I am rather puzzled as to what Mr Emmott: We have done a recent survey which is good legislation and regulation and what is bad asked about the amount of management time and legislation and regulation. cost involved in dealing with conflict at work. I do Mr Emmott: I think you are trying to put me in a box not think that the numbers are knock-down that I do not particularly recognise. I am saying that arguments to demonstrate that cost and time are we accept the need for legislation to tackle abuses. ruinously distracting; I think what they do is just What we are not always clear about is that the reinforce the case that DTI research has already legislation that is introduced is proportionate and made that there is—and obviously it is true—a eVective in tackling abuse. We are also saying that in management cost both in implementing legislation tackling abuse by bad employers you are actually and particularly in handling employment tribunal imposing real burdens on all employers that have to claims. Management time is at a premium in be weighed. What we would like to see is more small organisations; large organisations have emphasis on the business case for legislation. sophisticated HR departments and external legal Unfortunately it will diVer by size of company and advice on tap. The smaller the organisation, the by sector but I do not think that our attitude is bigger the distraction of an incident which can inconsistent. As I say, we accept that there should be actually be highly emotional and a lot of evidence a level playing field. We think largely that we have a needs to be prepared. You have to find witnesses, level playing field in terms of competitiveness. A lot management people have to say, “When I was there of employment regulation is no longer really about he said this or she said this” and raking over the tackling abuses; some of it is almost explicitly about coals. It is hard to put numbers around it. We have raising business performance, for example the some numbers and I am happy to send you the information and consultation regulations are an numbers we have out of our conflict at work survey opportunity, in our view, to improve management earlier this summer. As I say, they are broadly behaviour and to encourage a more participative consistent with what DTI say. The point is not some climate. We are comfortable with that as a lever and absolute one about statistics; it is about the fact that a symbol for getting more employers to look at managers want to be driving the business and if they people management issues. are busy handling conflict—which may indeed be their fault to a degree or entirely, I am not trying to Q245 Judy Mallaber: Is your position in eVect that allocate blame—that sort of activity does not drive you just look at things on a case by case basis rather business and does not help productivity. than have a particular overall view? Mr Emmott: I hope so. We have a pragmatic view. Q247Mr Clapham: I think it would be helpful if you Mrs Worman: I think that is right. You have to be could send on the information. Could I ask, did the careful that whatever you are doing in connection survey diVerentiate at all between the companies with regulation helps to deliver the kind of change that were unionised and companies that were not that business wants in order to progress because at unionised, and were there any conclusions that you the end of the day we are about organisations being could draw from that? successful and moving forward in appropriate ways. Mrs Worman: We will have to look at the data, but Those appropriate ways include ways which have a there will be data which will enable us to cut that to social implication as well. If you design law which see what the patterns were. If I could make reference interferes with the way business can respond then to another piece of work we have recently published you will get a negative reaction so I think you have to illustrate the issue about regulation in the area of to design legislation which helps to deliver the main discrimination, it was a piece of work based on 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Chartered Institute of Personnel and Development observation of legislation in the discrimination field because that is what employers need to know about which is grey and is becoming increasingly complex so that they do not get it wrong. There is that fear and can cause confusion. This document—which we factor about what the impact of law will be. will be happy to send you copies of—looks at the However, the research that we did showed that the way in which the regulatory framework either helps issue about having dialogue between the employer or hinders. We know from anecdotal evidence with and the individual and being solution-focussed was employers that those who are actually engaged with actually no big deal at the end of the day and there the ideas of moving diversity on as a key business was a spin-oV benefit. That is an illustration of the issue recognise the business case and want to move design of better regulation which actually simply forward, can find that regulation takes the eye oV triggers what you would hope to have in the that focus in a way that can hinder the way in which workplace which is good communication between they drive issues forward. It is a pointer back to the the employer and the individual employee and a need for appropriately designed regulation which contractual arrangement whereby there is fairness actually does not send up conflicting messages when built into it. you get diVerent statutes in a similar area not saying exactly the same thing. Also the way that regulation Q249 Mr Clapham: If we were to drive best practice could perhaps impede on the ability of an through industry it is quite possible that industry organisation to flex and respond to changes in the could manage the regulation that it has and at the marketplace in terms of business. One thing we are same time be productive. very conscious of—I am reading the guru in the field Mrs Worman: I think that if you design the of HR, Gary Hamel—is that change itself is regulation to support that delivery, yes. Then they changing. Other people in the diversity field know would find the use of law as a positive lever to resist that the only thing that is constant in business is those who have not quite got their heads round the change. Businesses need to be able to flex their challenges that we face in the modern world. muscles in all sorts of diVerent ways in order to make sure they can deliver to the marketplace and their external customers, but also they need to make sure Q250 Mr Clapham: I suppose one of the real that their internal customers are dealt with in a diYculties here is how do you devise a system of similar kind of way in terms of values, fairness and being able to get the information down to the small so on. employer and employers generally. Mrs Worman: In the discrimination field there is a lot more attention being paid to the communication Q248 Mr Clapham: Going back to something that of good practice ideas and sharing those experiences Mr Emmott said earlier, I think it was encouraging a and information. There is the “how to” and the more and more participative approach. Is there any guidance that might refer to it and so on. Even evidence that you have collected in your surveys that government campaigns have achieved quite a show where there is that participative approach, that serious amount of movement. You cannot get regulation is much better managed by the company? success overnight but you can keep plugging away Mr Emmott: We have certainly got plenty of at it. evidence that a combination of good HR practice, Mr Emmott: Whilst we are talking about costs and good people management practice including a flexibility could I just make two very brief points? consultative climate, participation, job design add One is about the right to request flexible working up to something which has a beneficial eVect on which was introduced 18 months ago. We have been business performance. We have quite good evidence wholly supportive of that piece of legislation and we that things like team working and indeed wider have argued that it should apply to benefit all consultation processes are part of that. The employees and our survey shows many employers evidence, if I may say so, about the impact of formal already do extend the right to request in practice to consultation structures is a bit more ambiguous but people other than parents of children under six. We certainly our broad line is that the more participative say it is so good because the benefits ratio to cost the culture and the more communication is going on, appears positive. DTI made a big eVort in the more sharing of decisions, the more you engage consultation with small firms’ bodies, CIPD, CBI employees by whatever means, the more eVective the and TUC to actually shape the right so that it would business is. Where regulation kicks in in that process have minimum cost and maximum benefit. I think is not something on which we have a very strong almost surprisingly the survey evidence shows that view, but certainly as I said we take the regulations so far that is the way it is working. I do not want to that are due to come into eVect early next year on be too euphoric but it was good regulation; we information and consultation and it is a big thought it was then and we still think it is and we reminder to boards of directors that command and think the track record shows that. So it is a question control style of management is not the most eVective of better regulation and not deregulation for us. The and we think that message is broadly accepted by second point is just to say that when you are looking many. at the costs of regulation it is not always the costs on Mrs Worman: The work we did on looking at the individual employers. There is a labour market issue. ways in which access to parental rights bedded down I recently helped DTI do some research into their initially before the introduction of law: there was shared HR pilots for small firms which the resistance on the fact that there was perceived to be Committee may be aware of (but if it is not I would lack of clarity about what employers had to do say that it is something you might ask DTI about). 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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Essentially the point about that is DTI put some very who find it most diYcult to pick up permanent jobs limited funding in nine pilot schemes up and down directly so they include women returners, they the country to support advice on HR and include disabled people or older workers; they employment law to firms with fewer than 20 include people who are undergoing a career change. employees. I went out there to help evaluate it and it There is some academic research on this at the was quite clear that many small employers were European level that I could probably refer you to if frightened rigid about employment regulation. you were interested. We do not see temporary Without recognising what its content was they read employment as some kind of sink activity where the Press and they were so worried they would not people are systematically badly treated. Our surveys recruit anybody outside family and friends. This was about attitudes tend to show that atypical workers not untypical. This was the smallest employers and including part-timers and temporary workers tend the one I am thinking about at the moment was in often to be more satisfied with their jobs and at least retail. A fairly small injection of advice and support equally motivated as other workers. We do not take from an experienced HR person or employment the view that agency workers as a group are a group lawyer raised their game, raised their confidence and of dispossessed and disadvantaged and alienated clearly in some cases it was encouraging them to people. recruit. I think that is relevant to labour market flexibility and it says that when you are faced with this conundrum about how to deal with inexorable Q254 Sir Robert Smith: It would be helpful if you increases in regulation you can tackle it at base if you could send us that research, please. The Chairman can persuade smaller employers that they have the dealt with the previous witnesses at the other end of confidence and the ability with a bit of help to handle it. the scale with the high earners who see the agencies as a way of managing their employment. I suppose they could be dealt with by some kind of cut oV on Q251 Mr Clapham: Given what you have just said earning levels or something. there, Mr Emmott, and bearing in mind the work Mr Emmott: If you look at the lower end of the that you did, what kind of mechanism do we require market the basic minimum protections already to really reach out to those employers who are apply to agency workers. We often discuss agencies frightened of change? as if the workers are totally lacking in protection but Mr Emmott: On the strength of those findings I would say use existing sector bodies or local people Working Time, Minimum Wage, holidays already who can gain the confidence of small employers. I apply to them. I do accept that the people at the top would also have to say that an element of funding is end who prefer a lifestyle associated with agency probably essential because most small businesses say work and who can actually earn more quite often are V the reason they do not have HR people is because adi erent group but my main concern is that if the they cannot aVord it and they do not have enough threshold in terms of employment service or knowledge of what is being oVered. A bit of start-up engagement is set too low you will discourage a great funding would be useful. deal of activity and workplace flexibility that is intended to tide employers over the peaks and Q252 Mr Clapham: Can I ask about the tick-box troughs in demand and/or help recruit people who, approach to compliance. You were suggesting in when first seen, the employer is unwilling to take on your memorandum that that in itself takes the focus permanently. oV the intention of the regulations. Is there evidence—and I would think that there is—to suggest that that is the case? Q255 Sir Robert Smith: How are the temporary Mrs Worman: We certainly discuss it in there and workers treated in terms of access to training and certainly when you have conversations with career development? employers that is exactly what it is. It takes so much Mr Emmott: If they are seen as temporary workers time. Mike has referred to the amount of time career development is not an issue for the employer invested in understanding the technicalities of it all that is using them. Somebody who chooses a career and we have limited time in business to deliver the as a temp and wishes to stick with that is going to day job. A tick-box approach is: “well we have done have to make their own career in any case and as much as we can in that area, we will be okay if we choose their jobs with care and probably bring the are challenged, therefore we go back to the day job”, basic skills or acquire them in the course of a yes, there are plenty of conversations about that succession of jobs. You cannot talk about careers happening. easily in terms of agency workers. We totally accept, incidentally, that after, say 12 months, it becomes a Q253 Sir Robert Smith: On the Agency Workers fiction to suggest that agency workers are anything Directive you are concerned about the role it plays in other than long term employees and the public taking people from temporary to permanent work. sector is particularly guilty for reasons of its own in Mr Emmott: Yes, we are. We take a view somewhat recruiting and hanging on to people oV the books. similar to the Chambers who were giving evidence to We do not support that, but we do think that to you a moment or two ago. I think we would add to reduce the volume of agency work in the UK context that that the sort of people who use temporary work would actually be an unwelcome and unfortunate as a way into full-time employment are often those development. 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Chartered Institute of Personnel and Development

Q256 Sir Robert Smith: You suggested that the cost Mr Emmott: There is a risk that that will occur of employment regulation will merely be passed unless the Low Pay Commission continues to follow onto workers in the form of lower wages. the admirable policy it has done of being somewhat Mr Emmott: As a non-economist, Sir Robert, might cautious. I agree, you only find in the end that it has I duck on that one and say that the paper had been damaged once damage has been inflicted. I do not written to tackle your issues of flexibility and give, if think we wish to suggest that the Low Pay you like, an economic gloss informed by an Commission should adopt that tactic because I think awareness of HR issues. I am not really competent the damage would take some time to undo. We have to take on Stephen Nickell. He talks about the long confidence in the Low Pay Commission; it has run and I would not wish to go down that track. He certainly done a good job so far. makes a number of assumptions about the relationship between profits and the workers’ share Q261 Mr Evans: What rate do you think the in terms of wages and it is a piece of economic Minimum Wage should be set at? analysis that I have no wish to take issue with but I Mr Emmott: We do not have a view of our own. We am afraid I cannot sustain for your benefit. do not ask our members. We regard it as not a particularly HR view; it is a political balance that we are happy to see the Low Pay Commission deal with. Q257Sir Robert Smith: There was one other thing that we raised with the previous witnesses, the normal retirement age. Do you have a view on that? Q262 Mr Evans: Do you not make any submissions Mrs Worman: We do have a view on that in to them? connection with the expected legislation on age. We Mr Emmott: We have not done, no. believe that it should be an open ended situation regarding when you leave your employment because Q263 Mr Evans: The TUC thinks it should be employers and individuals need to have more choice about £6. and more flexibility in terms of accessing talent and Mr Emmott: We have not made any public individuals wanting to continue to earn money comments and we are not likely to on the level of the because they need to or because they want to make a Minimum Wage. contribution. We have a skills shortage and evidence continues to show there is a skill shortage. Not Q264 Mr Evans: Do you think it might hit some everybody wants to finish work and retire when you sectors more than others? get up to that cliV edge decision making and so on. Mr Emmott: It is in the nature of national legislation There are very many diVerent reasons why people that applies to all employees that some sectors will will want to continue to work. The key reasons why be worse aVected. Obviously those that employ large businesses will find having an artificial final period numbers of low paid workers will be more aVected. of time does not make sense is because the demographic pattern changes, we are all living Q265 Mr Evans: Moving onto another regulation longer, there are skill shortages and so on, and the then, the Working Time Directive and the opt-out. shrinking proportion of younger people (only a 1.7 What is your view on that? birth rate in the UK). So to have a final situation Mr Emmott: A lot of opted-out workers are not makes no sense in the longer term to the future about likely to work more than 48 hours over any extended how you access talent. We believe that having a period. I think our view is that many employers have default age is just postponing the challenge. Let us used the opt-out simply to protect themselves from start now by undoing all those unnecessary barriers any issue or debate on issues of Working Time. Our to facilitate choice on both sides in a way that is surveys show that about half of people working reasonable and fair. more than 48 hours consistently say they do so entirely voluntarily. Obviously some people will be less enthusiastic than others. Q258 Mr Evans: In your view why did unemployment not rise sharply when the Minimum Q266 Mr Evans: That leaves another half, does it Wage came in? not? Mrs Worman: Because it did not impact on what the Mr Emmott: Yes, absolutely. I was just about to market would bear. accept that that leaves a half who feel some sort of pressure. That does not mean that that other half is Q259 Mr Evans: At the current level is it impacting necessarily abused; it may just feel there is more yet? work to do than they feel comfortable with. It may Mrs Worman: I do not think we have any evidence be that they want to look after their colleagues and of that and I think testing the marketplace is the only feel the pressure from them or it may be that they are way in which you can actually get a better view on worried that their employer is going to go out of what that should be. business unless they work long hours. I am simply stating, Mr Evans, that there is a good deal of voluntary long hours working and our concern Q260 Mr Evans: The only way therefore to tell about the operation of the Working Time whether it is going to have an impact is by increasing Regulation would be primarily if it criminalised all it by more than the rate of inflation until it starts those people working more than a fixed number of to bite. hours per week. 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Chartered Institute of Personnel and Development

Q267Mr Evans: You do not think there is suYcient Q270 Mr Evans: Do you think that if this comes it flexibility then if they opt-out on this averaging will make British firms less competitive? system. Mr Emmott: I think at the margin it will require Mr Emmott: I think there is quite a lot of flexibility some changes in working patterns. Some of those certainly on scope. Who is an autonomous worker? may be beneficial in the end; some of them will be less If I choose to come in at nine o’clock and leave at 10 beneficial. I do not think the impact of losing the o’clock at night and never ask my boss if he is happy opt-out will be quite as large as perhaps is sometimes with that, am I autonomous? There is flexibility but feared, but I think the point about the opt-out is that there are also issues about the averaging period and it has totemic significance. It was an early piece we would support a longer averaging period than is of European legislation that was seen to be currently built into the directive because all the disproportionate to the problem. I think in practice health evidence is that it is long term long hours it may have slightly less impact if we lost the opt-out. working that does the damage and, just as a side issue, less damage if it is willing and voluntary long Q271 Mr Evans: Who is going to suVer most, the term long hours working. The problem about employer or the employee? flexibility in this context is that the possible changes Mr Emmott: That is very hard to say. I think clearly to the directive have identified workplace some employees would lose out. I cannot tell you, I negotiation as the key element by which flexibility am sorry. I have not really thought that through. should be maintained, if it is maintained. The problem in the UK workplace in the private sector is Q272 Chairman: Could I just ask one last question? that there is a relatively modest trade union presence You very skilfully avoided answering questions on and relatively little negotiation on these issues. the National Minimum Wage in a quantitative There is reluctance on both sides I think for non- nature, but could I ask a question of a qualitative unionised workplaces to make a reality of the idea of character? It has been suggested to us by previous non-union representation. Flexibility at European witnesses this morning that with the upward level is going to be very diYcult for the UK to take pressure on wages—the Americans call it the rising advantage of. That is a worry we have. boat syndrome—the diVerentials will be aVected. In theory one can understand quite clearly what that means but as practitioners what is your view about Q268 Mr Evans: Who does the long hours? Is it the diVerentials and the National Minimum Wage? low skilled people? Mr Emmott: I think that it is one of those issues you Mr Emmott: It is two groups. It is low paid workers only find out about properly when you have actually and in some cases it is institutionalised over-time but made the shift. If you think back to the 1960s and in any case it is people who are not paid very much 1970s when diVerentials were a real issue when per hour and who need to put the hours in in order companies tended to have pay structures and when to get by. At the other end of the scale, if I may say they were still to some extent industry-based so, it is people like you and me who do not count the structures, I think the diVerential argument was hours and do not get paid in relation to the extra stronger than it is now. I think it is hard to anticipate hours we do but we are committed, we enjoy our how significant increases in the Minimum Wage—if work and there are a lot of us. they occur—would be interpreted by other employees. You only have to look at the railways to see the old issue about relative pay and conditions Q269 Mr Evans: There is a general feeling as well still applies to a degree, particularly in industries that if this comes in some people will get two jobs where pay structures are visible and systematic. I and work so much in one and so much in another. think I have to say the dangers of damage are Mr Emmott: There are real enforcement issues and probably slightly less direct than they would have that is an issue now. Which employer is supposed to been 30 years ago but they have not disappeared. be ensuring that an individual employee looks after Mrs Worman: It certainly was not our policy him or herself? I think I would worry about Working recommendation. In fact we said the opposite, that Time and I am sure the unions have had this the Minimum Wage should not lead to diVerentials problem—although you can ask them yourselves— being enhanced. That was the guidance we gave to that the whole issue of regulation of Working Time members. has never caught fire with the individuals who are supposed to be suVering. We know that a lot of Q273 Mr Evans: What about the impact of a £10 people feel uncomfortable about work pressure, Minimum Wage? work intensity and so on but there are—as you know Mr Emmott: I think that would be seen as a and you have been asking our predecessors today— symptom of the Government having flipped, really. issues about work/life balance. We are wholly in Mr Evans: So you are prepared to comment on it favour of tackling work/life balance as an issue; we then! are less comfortable that you can do it through the Chairman: On that note, thank you very much for Working Time Regulation. your help. 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

Ev 46 Trade and Industry Committee: Evidence

Witnesses: Mr Peter Schofield, Director of Employment and Legal AVairs, Mr Stephen Radley, Chief Economist and Mr David Yeandle, Deputy Director of Employment AVairs, Engineering Employers’ Federation, examined.

Q274 Chairman: Good morning. Mr Schofield, diYcult to explain in a simple outline. Again, the would you like to introduce your colleagues, please? Government in its publicity said that the Dispute Mr Schofield: Certainly. On my left is David Resolution Regulations are as simple as one, two, Yeandle who is Deputy Director of Employment three but it took us 104 pages to explain them to our Policy and on my right is Stephen Radley who is our members in this publication. Just in case you think Chief Economist. it is us suVering from verbal diarrhoea it took other publishers 133 pages to explain the Dispute Resolution Regulations. We do what we can and we Q275 Chairman: In your evidence you have referred V to the cost of compliance with regulations but do o er a helpline which members can access at any you have much evidence of the amount of time at no cost above their original membership fee management time that is being diverted amongst and we do represent them in employment tribunals. your membership? Is there a sense that small businesses have to divert attention whereas large Q277 Chairman: It would be right to say that you businesses just give it to the HR department? oVer that kind of service to the engineering/ Mr Schofield: There is no doubt that large businesses manufacturing industry; is that replicated by other do give it to the HR department but that does not trade associations do you know? mean to say that there is not a lot of management Mr Schofield: There are others who do similar things time then being devoted by the HR department and but perhaps not to the extent that we do. We that comes itself with a cost to the business, at least certainly, amongst trade and employer bodies, in opportunity cost. Small businesses where HR represent in tribunals far more than any other such personnel issues are devolved to somebody who bodies, for example. We have something like 60 has some other responsibility—operational or employment lawyers employed throughout the commercial or financial responsibility—clearly they country which is far more, by a long way, than any are going to be diverted from their task. I have to say other employer body. that we have limited evidence—and it is anecdotal— about the amounts of time. In relation to, for Q278 Mr Clapham: Mr Schofield, could I just ask a example, the Dispute Resolution Regulation which couple of questions about investment. You suggest came in in October, we did ask informally some of in your paper that employment regulations are our member companies about their own estimate of deterring UK companies from increasing how much time they put in to introducing these investment. Is there any hard evidence to support regulations into their workplaces to compare it with that assertion? the estimate that the Regulatory Impact Assessment Mr Schofield: I will pass that question straight to the had made, which was an estimate of between half an economist. hour and four hours management time that would Mr Radley: The evidence you have seen is drawn go in per company in implementing these from a major productivity survey we did, in this case regulations. Anecdotally from those that we asked, talking to 600 companies in France, Germany and that seemed to be a gross underestimate as we rather the UK. We have also done previous research suspected it might be and companies were telling us comparing with the United States. I would also be more like a day and a half to five-plus days of drawing on some forthcoming research which we management time to implement those regulations. will be publishing which is looking at the competitive challenges companies face and how this is Q276 Chairman: Do you oVer much in the way of influencing investment decisions in terms of assistance? You are quite a big organisation. investing here or investing in other parts of the Historically your functions have changed. I world. The context in which companies answer these remember the days of old at least in my house it was questions was that they faced increasingly intense a term of abuse because my father was an challenges over the last few years in terms of a engineering shop steward. You have moved out of downturn in world markets and overvalued the area of wage negotiations and the facilitation of currency and a step change in the intensity of that and you provide help and advice and executive competition that is still occurring. It is also a time documents to your members. when the issue of management has become more Mr Schofield: Yes, we do. I have brought some complex in terms of the range of competition, the visual aids along with me. This is a lawyer’s book on range of customers, managing the dispersed employment law. There are 2,200 pages of networks across the world and also managing a employment legislation in this book which is more more complex supply chain. Our evidence shows than any employment lawyer can know, never mind that compared to companies in France and a manager of an engineering firm. It is a huge Germany manufacturers in this country saw amount and 40-plus% has come in since 1998. We regulation as negative for their plans to increase tried to digest it in simple, easy to understand terms investment in this country. In France and Germany for our members and this book is, as we speak, being it is seen as a positive factor although very delivered to them. They are given this book marginally so. Our interpretation of this is the fact annually. It has no jargon and it is very simple but it that over the last few years employers have had to is still 600 pages of the basics. A lot of the time it digest an enormous amount of legislation, much of says, “Call your EEF Association” because it is too it in the employment area and that has actually 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Engineering Employers’ Federation distracted management time from other eVorts such are already discovering that once upon a time the as raising levels of investment and other things that legislator spoke on the subject and that was it, but they need to do in their companies to improve their now—like Arnold Schwarzenegger—it will be back. productivity and competitiveness. Having spoken on Working Time Regulation, it will come back and speak again on Working Time. It Q279 Mr Clapham: So it is fair to say that there is a seems to suggest that it is a function of regulating at multiplicity of factors involved. That leads me to my that detailed level that you necessarily have to review next question which is, why does it not deter foreign standards that you have set and you may increase companies in the same way? You have answered that them over time. The reason business is squealing, if to some degree, Mr Radley. You say it is one of you like, is that there is a great deal of regulation in a perception that foreign companies perceive short period of time aVecting things that have never regulation in a much more constructive and been aVected before by legislation, or not since 30 positive way. years ago with the unfair dismissal regulations, on Mr Radley: I think it is very much the issue of the 19th Century Truck Acts. The individual actually adapting. If we are looking at companies employment relationship has not been so directly that are based in France and Germany, they have aVected and businesses notice now how much time had much of this legislation on the statute books for and eVort they are having to put into adhering to the some time so they have not had to adapt to such a legislation. large amount of legislation in such a short period of time. It is a factor of the environment companies work in and less a cultural factor amongst managers Q281 Chairman: I am intrigued by this because I because if you actually probe a little bit deeper into have been in this House for quite a while now and I our survey evidence and look at the diVerence remember the changes in Industrial Relations between UK owned companies in the UK and legislation every two years in the 1980s. It was the foreign owned companies in the UK in terms of their salami slice approach that was adopted and there it attitude to regulation and how it impacts on was not so much imposing on employers as V investment, there is no di erence at all. restricting workers’ rights, so that does not impose a burden on employers but it does detract from Q280 Mr Clapham: In your submission you did state workers’ rights and that is not going to be a problem quite clearly that your survey found that despite a for management. However, when workers’ rights are greater labour market regulation in France and enhanced it is at the expense of management time. Germany companies operating in these countries Mr Schofield: You are absolutely right. It is at the view regulation positively. expense of management time because it is an issue Mr Radley: If you are looking at France and that they have not had to grapple with before. I do Germany and other parts of the Continent not say that the Conservative salami slice approach specifically, there is the issue of being more is something that we are not seeing now in fact. In accustomed to regulation. If you are looking at the the trade union arena I think we are now seeing the specific question of investment, what you tend to mirror image in that we are now finding the 1999 find in the UK traditionally is that companies are Employment Relations Act added to by the 2004 actually responding to changes in demand by Employment Relations Act. Who knows what is actually changing levels of employment in their next? It is quite possible that we are seeing the same company. In France, Germany and other parts of thing but in mirror image. What I am suggesting is Europe that has been less of a tradition because they that when it comes to the individual employment have been more accustomed to more regulations in relationship once you decide to start regulating the employment area and so there, response has those details you cannot stop. You are not going to tended to be to have a more capital intensive mix set forever the one standard and you are going to within their companies. keep coming back and employers are saying that it Mr Schofield: Could I just add that it is this is a lot in a very short time. unprecedented period that we are going through of a lot of legislation in a short period. It is historically Mr Yeandle: If I could just supplement that, I think unprecedented. We have not had such a quantity of back to before I joined the EEF I was a human legislation over a short period and unlike other past resources manager in a large multinational employment regulation it has concentrated very engineering company in the 1970s and 1980s and I much on the detail of the employment do not recall, despite the fact that there was—as relationship—on the wages, on the hours, on you rightly pointed out, Chairman—a lot of holidays and so on—so it directly aVects every employment legislation in the 1980s, the direct business’s relationship with its employees. A lot of it impact of that did not require me, as a member of the is complex and uncertain; some of it is poorly personnel function, to get involved. The legislation thought through legislation, poorly drafted; some of frankly had very little, if any, impact on the vast it comes from Europe and there is an abdication of majority of companies. It was much more about responsibility I would say on the part of the managing the trade unions in a sense. What we are Government sometimes to simply copy out the now seeing is legislation that is directly impacting, as directive and say, “We don’t know what it means; Peter has said, on that individual contractual we’ll leave it to the employer to find out what it relationship and it does mean that people who are means”. Then there is a final phenomenon that we in human resources departments or personnel 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Engineering Employers’ Federation departments are actually, on a day-to-day basis, However, in saying that flexibility has diminished having to get involved in the practicalities of the what are you suggesting our response should be? Are legislation. you saying that we should respond with further deregulation? Q282 Mr Clapham: I hear what you say, Mr Mr Radley: If you look at those surveys they are Yeandle, but I recall that in the 1980s there were those published by the DTI on their competitiveness authors of books just as voluminous as the two that indicators. They are based on businesses’ Mr Schofield has there. I am thinking in terms of perceptions around the world. What they show is Jeremy McMullen and his book on employment law something of a deterioration in the UK whereas and I think that is a book that is updated and, if my some other countries actually have perceptions memory serves me correctly, it is a book that is still which have improved over that period of time. They updated today. So there was certainly the same kind still show that the British position is relatively of approach but from the other side of industry. I favourable to many other parts of the world. I would just want to go back to the point that Mr Schofield want to reiterate what we have said already, that we made because it seems to me that if we are saying— would want to be putting the emphasis on the and there is evidence in your submission—that there quality of regulation: better regulation, better is a more positive approach taken by companies in communicated, better timed; all those sorts of France and Germany and that is more likely to lead factors. In terms of the issues facing our members in to better management and regulation than here, terms of the competitive environment: in terms of where we tend to see an antithesis to regulation that wanting to keep the UK attractive as a place to actually can manifest itself in a way of thinking that attract foreign direct investment into the country, in we are not going to make it work. terms of helping manufacturers make the case to Mr Schofield: If there is an antithesis to legislation I invest here rather than other parts of the world, it is believe it is because of the quantity in the short time a range of factors we have to influence. Regulation and the quality of the legislation we have to deal is one of them, but it is also taxation, the cost base; with. The CIPD has already said to you and I am it is skills, it is transport, planning, innovation. All sure that everyone that has spoken to you has those factors as well are just as important. probably mentioned the Right to Request Flexible Working as an example of legislation that works but Q285 Judy Mallaber: Are you suggesting that we was eVective in raising the issue in the minds both of should be deregulating that as one of those factors? employees and employers and getting both sides to Mr Schofield: I do not think it is any part of our recognise that there was a question there that needed suggestion that we should be deregulating. There are to be tackled in promoting dialogue and it is certainly a lot of parts of employment regulation legislation that works. Legislation, on the other that I could point to and say, “That could have been hand, that is a blunt instrument—take Dispute done better”. Frankly, we are pragmatic. It is very Resolution as an example—requires of the good and diYcult to take away rights once they are granted the bad employer alike a great deal of management and we are not suggesting that. We are suggesting time to change practices, many of which are that before you add further to the rights just think perfectly acceptable and have hitherto been perfectly carefully about the burdens you are placing on acceptable practices. That is the sort of thing that businesses to cope with these rights and whether they companies object to. I do not say that employers are really necessary and how you can regulate in a object to good regulation which they can manage; way that meets the approval of all sides, like the the problem is managing the quantity and the flexible working and like the information and quality of the legislation that we have had. consultation regulations.

Q283 Mr Clapham: I hear what you say but the Q286 Judy Mallaber: Do you not accept that at answer to the question: “Why do foreign companies times there seems to have been an incredibly not have the same problem with regulation?” taken tortuous and lengthy process of discussion with from your submission would be that they have a diVerent elements in industry, including employers’ much more positive attitude. organisations. It sometimes seems to have gone on Mr Schofield: I am suggesting to you that the endlessly. negative attitude comes from the experience that Mr Schofield: There are lots and lots of discussions business is now undergoing and it might be that were but there are diVerent processes. Having been things diVerent British business would have a more involved in the consultations on all of the legislation positive reaction: if it had been paced, if it had been and the employment legislation that has come in, better drafted, if it had been more carefully focussed there are diVerent processes adopted for diVerent on the problems in some cases. pieces of legislation. Some are better models than others. We accept that we are asked and consulted, Q284 Judy Mallaber: You have noted in your but there are better models. submission that the UK’s position in various tables of labour market flexibility has diminished recently Q287Sir Robert Smith: Can the consultation in itself although I note that those studies will obviously not be a burden? depend on the person being surveyed as to their Mr Schofield: It can be for an organisation like ours attitude to what flexibility is and I think two of those which is not heavily resourced in that area. It can be three surveys were surveys of business opinion. for our members because with the introduction of 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Engineering Employers’ Federation employment legislation twice a year then there is relatively modest impact on the vast majority of our clearly a burden on us at the consultative stage members. It certainly had a relatively modest impact because there is legislation piling up to be introduced in terms of a direct impact because a lot of our on 6 April and 1 October annually. We do not say members’ employees are more highly paid than some that is a bad thing; the virtue of that is that it does other sectors of the economy, but it was always draw attention to employers of all sizes that there are going to have—and has had—an indirect impact. A new rules that they are going to have to observe. lot of the bought-in services that our members However, there is a downside in terms of trying to have—things like security, catering, cleaning; get our members’ views on new proposals when occupations that nowadays are not part and parcel there are half a dozen new proposals all at once. of the company’s operations but are bought in Mr Yeandle: If I could just pick up a point which was services—are classically labour intensive labour made about consultation being a burden, it clearly operations and classically often paid at the lower end is; there is a lot of it going on and it takes a long time. of the wage structure. Therefore the National I do not think that should be seen as a criticism that Minimum Wage has impacted directly into those actually getting legislation better has taken a sectors so there has been a knock-on eVect in terms long time. These are diYcult and complex issues. of cost. I think that is one of the reasons why in terms You are trying to develop legislation in a whole of the recent presentations that we have given and range of fields that have to be capable of being evidence that we have submitted to the Low Pay dealt with by large and small companies, by Commission on a number of occasions—certainly companies with very diVerent employee relations the last two or three occasions that we have cultures, with companies that recognise trade unions submitted evidence to the Low Pay Commission— and do not recognise trade unions. I do not envy the we have argued quite strongly that we have got to a role of the legislator to come up with legislation that stage now where rather than it be left solely to the is properly balanced that can achieve all of those Low Pay Commission and the Government to things. determine what happens—and we have seen the variations in increases in the National Minimum Q288 Sir Robert Smith: Going back to the earlier Wage that have occurred over the last three or four years—we think we are at a stage where we need to comparisons with the culture in other countries, V regulation that has some permanency, presumably if have a formula so that employers who are a ected people have some confidence that they know what either directly or indirectly can have greater the environment is they are more likely to be able to confidence and certainty about what that impact is cope and adapt in it. going to be and can plan accordingly. Therefore we Mr Schofield: Indeed, and we have had unfair have argued quite strongly in the last two or three dismissal laws for 30 years but it took quite a long sets of evidence that we have submitted that there time before employers really got to grips with the full now should be a formula that ensures that the ramifications of unfair dismissal law. A lot of it was National Minimum Wage moves forward and that within the secret knowledge of employment lawyers we believe will provide a degree of certainty and help for a long time and you had to consult them before the planning of companies both in terms of the you knew it, but gradually the basic principles of indirect and the direct impact that it has on their how to handle all sorts of employment issues became businesses. better known. The problem here is that you are scarcely on top of maternity rights, for example— Q290 Chairman: How long did you say? one of our HR directors and one of our members Mr Yeandle: The last two or three occasions that said to me yesterday, “I have to look it up every time we have submitted evidence to the Low Pay we have a pregnant employee because I can’t Commission we have said that in order to get greater remember it”—you just about get on top of it and it certainty about the impact that it is going to have on has changed again. our members, we feel that a formula should be used and we have said that that formula should be based on movements in basic rates of pay across the Q289 Sir Robert Smith: Can I go to one specific economy. assessment and that is the cost of the minimum wage so far? Mr Yeandle: Can I make a general comment first Q291 Sir Robert Smith: Projected forever forward. about the National Minimum Wage? I think Mr Yeandle: Yes. That should be the way it moves perhaps unlike some other employer bodies we were forward. not as a matter of principle opposed to the concept of a National Minimum Wage; we were concerned Q292 Chairman: Is there not a danger in about the potential burden it could impose. Indeed, automaticity of this kind that you could have in I think it would be fair to say that a number of our times of inflation a ratchet eVect? members were supportive of the concept of a Mr Yeandle: There is always that danger. In a sense National Minimum Wage because they felt it was arguably you have that irrespective of whether you something that would achieve an element of a level have a formula or you do not have a formula. If you playing field. I think that was very much our look at the way the increases have gone up the philosophical position when the National Minimum figures have been substantially above both basic Wage came in. I think in terms of its impact, when it rates of pay within our sector and the vast majority started oV the National Minimum Wage had a of other sectors and indeed way above average 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Engineering Employers’ Federation earnings. That is why it is now beginning to have— because they want to work the sorts of hours that although not much—an impact at the bottom end of there are available. If the individual opt-out was to the pay structure even within engineering and go it would have quite an important impact on a manufacturing. large number of companies. That would probably be minimised or be reduced if we moved towards the Q293 Chairman: It has been said that this is very concept of averaging working time over 52 week much a suck it and see process and that the size of the periods, but that will not solve the problem. We have sweetie is rather bigger to suck this time than before. examples of companies that, as you are probably They have not had a bad strike rate so far, the Low aware, today can on a collective basis agree to Pay Commission, have they? average working time over 52 weeks. That does not Mr Yeandle: I am not being critical of what they happen very often but it does happen and I am have done so far. In fact, I think the process that they certainly aware of companies where they have had is actually quite a good one. I think the process agreed with their trade unions to average working of having representatives from employers, trade time over 52 weeks. Even in those situations it is unions and, indeed, knowledgeable academics sometimes necessary to have a few people— sitting around a table particularly to set the initial specialist skills perhaps—who have agreed to sign level and various other aspects around. The the individual opt-out because the nature of that National Minimum Wage was a good process. I business is such that workload peaks and troughs think it is a process that could be looked at in other mean that even despite a 52 week averaging period areas. It is a good process, but I think we have got to there will sometimes be occasions when the demands a stage now where, if you look at the rates of of the business, the need to meet particular targets Y increases that there have been, it is very di cult for and demanding customers, does mean that people managers today, given the variation that we have will need to work more hours than 48 hours per week had in terms of recommendations from the Low Pay averaged over 52 weeks. Commission, to know how they can plan future pay increases, what is the impact on the National Minimum Wage going to be in direct and indirect Q296 Judy Mallaber: You have mentioned the terms into the future. They do not like that positive impact regulation can have on productivity. uncertainty; it creates a problem for them. Could that not be so with the Working Time Directive particularly in relation to family friendly Q294 Sir Robert Smith: There are a lot of people legislation and, of all things, the long hours culture employing people who are on the minimum wage that we have which may be based just on the fact that providing services through contracts to others, have people are paid very low hourly rates actually has a they been able in any way to build an element into detrimental eVect on family life and is possibly a their contracts that can adjust the price depending pressure against some groups of employees being on the minimum wage? able to take on the job even though they have skills Mr Yeandle: I do not know the answer to that a business might wish to use. question; I have not gone into that sort of detail. It Mr Yeandle: There is no doubt that we do have a would not surprise me if some of them have done, particularly those who are in a strong market record in the UK of having relatively long hours, but competitive position, but I am not aware of the I think those hours are starting to come down. We detail of it. equally have an extremely good record of a lot of people working shorter hours. We have far more experience of part-time work and short hours Q295 Judy Mallaber: Moving on, what would the working in our country than they do in most other impact of the removal of the opt-out from the countries. My experience both in my domestic life Working Time Directive have on your members? and talking to companies is that there are quite a lot Mr Yeandle: It certainly would have quite a of situations where families make a decision for a significant impact. Working time is classically one of period of time that one of the partners will work those areas of legislation which is very, very complicated and we certainly feel that any changes relatively long hours and the other partner will work that are made to the Directive need to be done in a relatively short hours. That is a decision that they way that actually copes with issues such as dealing make as a family in terms of the way they want to with diVerent companies with diVerent types of manage their work/life balance. I think we have to be arrangements and, indeed, properly balances the very careful that by putting heavy penalties at the protection of the individuals with not providing top end which might actually reduce those hours, it heavy burdens on employers or undermining the might make it more diYcult for companies to be as flexibility of the labour market. We recognise that is flexible as I believe they currently are in terms of adiYcult challenge both for European legislators part-time work and allowing people to work short and to UK legislators. So far as your specific hours. Whilst I think it would be fair to say that the question is concerned, certainly there are a large vast majority of those situations where you have a number of EEF members who do make use of it and partner working long hours and a partner working their employees make use of it. It is something that is short hours, it is the man who is working those long very much entered into voluntarily; we have no real hours, I am certainly aware of examples where it evidence that there any pressures put on individuals. works the other way round. It often depends on the A lot of people do sign the individual opt-out earning ability of the respective partners. If it so 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Engineering Employers’ Federation happens that the woman is the better earner then she move more easily to a 52 week averaging period that may well be the person who works those longer would be something that more and more companies hours and her partner works the shorter hours. would see as an attractive way of running their businesses and thereby improving their productivity Q297Judy Mallaber: But there is evidence that a performance. number of those part-time workers would like to work longer part-time hours and that question of Q298 Sir Robert Smith: You list a lot of legislation flexibility is totally there. I know from experience of here and all of it makes sense apart from one: the talking to firms in my constituency that resistance is Human Rights Act. often based not actually on what looks like the needs Mr Schofield: At the moment we are representing a of their process but just on attitudes of the member company who is being taken to the Court of employers. Do you not think that some form of Appeal in relation to Sunday working directly under further regulation might encourage a greater the Human Rights Act, so it can impact. flexibility and a greater preparedness to look at diVerent patterns that might work better for them? Q299 Sir Robert Smith: Without the Human Rights Mr Yeandle: I think one thing that would certainly Act they would have been taken to the European encourage that would be moving to a 52 week Court. averaging. It has been something of a surprise to me Mr Schofield: They would perhaps have taken the that we did not find more enthusiasm for the annual United Kingdom Government to Strasbourg but hours concept. It is a very useful way for companies they would not have taken our member company to to manage their workforces. I quite expected when appeal in the Court of Appeal. the Working Time Directive came in that we would Chairman: Thank you very much, gentlemen. That see more companies moving to an annualised hours has been very helpful. If we need additional approach which is a much more flexible way of information or any evidence we will get back to you. managing working time. I think now that if we could Thank you.

Witnesses: Mr Alan Tyrell QC, Chairman, Employment Committee and Mr Stephen Alambritis, Head of Press and Parliamentary AVairs, Federation of Small Businesses, examined.

Q300 Chairman: Thank you for coming along this legislation. The complexity and the ferocity of the morning, gentlemen. Mr Alambritis, we know you speed of the change have caught them oV-guard in of old, but perhaps you could introduce yourself and terms of the legislation. The other point they are your colleague. beginning to make is the nature of the employment Mr Alambritis: I am Stephen Alambritis, Head of regulations based not on collective bargaining but Parliamentary AVairs at the Federation of Small on the individual rights for a certain class of worker, Businesses. With me I have Alan Tyrell QC who those with children. We have had parental leave, is the Chairman of our Employment AVairs maternity leave, statutory maternity pay made more Committee. generous and what our members are saying is, “I have all kinds of staV, both with child caring duties and without and I am just getting some resentment Q301 Chairman: You have expressed your members’ from my members of staV who do not have children concerns with employment regulation in the UK, when they see someone coming on board and within but where does it stand in the kind of hierarchy of a year they are changing their hours of work”. That your complaints or your concerns? Where does it is the kind of message that is coming back from the stand in relation to taxation, access to finance, members in terms of the regulations. We do provide availability of training? How significant is it as a them with a free legal advice line 24 hours a day. barrier to growth, as it were? There are over 150,000 calls a year. We are like the Mr Alambritis: It is up there with those items you ACAS for small firms. We defend them in court in have mentioned along with administration of the tax employment tribunals but only if they have done it system, the level of the tax system; late payment is a properly and come to us first. Those calls—as Alan problem they report to us; skills shortage as well and will say—have begun to go up in terms of the type of the cost of training. However, in the last few years calls predominantly on employment regulations. the ferocity, the complexity and the change of legislation—especially employment legislation—has increasingly been reported by the members, 50% of Q302 Chairman: You are almost saying that if you whom are employers employing on average less than are of child bearing age, if you have children, try and five people. We represent the small employer. When avoid a small business as a potential employer. we look at our members put together—all 184,000 of Mr Alambritis: What we are saying is that from the them—they employ one and quarter million people. employer’s viewpoint they are the ones who may They want to employ; small businesses have been the have to pick up the resentment in terms of the right new job creators. It is the large companies who are for a certain class of worker and not for another shedding labour or pushing labour abroad to class. When we surveyed our members they have cheaper clients so in the typical small firm it is the been employing in equal parts in terms of male and owner/manager who needs to deal with the new female and age; we could not see any discrimination 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Federation of Small Businesses there. It is the fact that they themselves need to deal United Kingdom. We just need to be that step ahead with the regulation, the legislation and they have just to make sure we do not over-regulate and start to been caught oV-guard by the ferocity and the lose out on jobs. number of changes. Also, ministers have a penchant for saying, “We are introducing this regulation and Q305 Mr Clapham: We had the Chartered Institute we will review it within two years to see how it is of Personnel and Development who cited evidence going”. That brings a bit of instability again. It is the to us that the UK scores highly against more ferocity and the complexity. measures of labour market flexibility but lags in terms of functional flexibility due to a lack of skills. Q303 Mr Clapham: Mr Alambritis, you suggest in Given your deregulation agenda, how would that your submission that employment regulation has facilitate functional flexibility? reduced labour market flexibility, but you also Mr Alambritis: I think the agenda for us is also suggest that the UK has one of the most flexible reregulation. We would like to see less of regulations labour markets in Europe and the G7 as well as the but also let us look at the regulations and see OECD. Why then does there seem to be a greater whether we can deregulate, revisit them, do them in concern with the volume of regulation here in the adiVerent way. Think small first. I think if we can UK? have a regulation or a piece of legislation in the Mr Alambritis: I think it is because we have a larger employment field that thinks small first and that is number of smaller employers. If we look at the map how it is introduced, then surely it will be okay for of employment and employers, we have about 1.2 the Asdas and the Tescos of this world. To pick your million employers in the UK registered for PAYE; point up on Asda, in terms of the patriotic side of the only 9,000 of them are large employers employing UK economy, we do like to say that it is the small more than 200 people. The vast majority—97%— business side that is the more patriotic in terms of are small, tiny employers so when legislation comes investing locally, retaining locally and employing in we tend to get a bigger outcry in the UK about local people, whereas it is the larger company that employment legislation because we have a larger has a global duty and will go to wherever it is cheaper number of smaller employers. We want to keep that and they have their call centres abroad. I think our flexibility; we want to keep the UK up there in terms members are concerned about the cost of training, of that flexibility. The Small Business Service—the particularly in terms of time and they are seeing Government’s own service, although the Small some skill shortages. I think we have a proposal for Business Council led by William Sargent is that self-employed person to take on that first independent of it—has estimated that normally self- employee as sole trader initiative where the Government can step in and say, “If you are self- employed people (of which there are 2.8 million) employed, if you are thinking of taking on your first about 7% like to employ an extra person each year employee, we will make it easier for you by having a and they are beginning to suggest that we may be kind of House of Commons fees oYce and we will do foregoing 200,000 new jobs if the employment all the work for you. You just tell us who you are regulations are starting to put oV self-employed going to employ and we will sort out the maternity, people from taking on that extra person. So it is the sick pay and so on.” Just that first employee; that something that they are teasing out at the moment in first step into employment to get them in there their annual report that came out last week. We do because there has been a lot of legislation. They are get a lot of start-ups who are saying that it is one beginning to say, “I would rather carry on with the good game to be self-employed, sole trader, in existing staV I’ve got. I’ve read that there is this charge of your own destiny, do what you want when legislation and that legislation and that is coming up. you want and how you want; it is just a bit of another I will just stay where I am.” We do not want that game to be an employer today. There is a lot more because the job creation potential will be from the involved. The job creation potential is definitely smaller firms not from the larger ones. there. Q306 Mr Clapham: When you have taken soundings Q304 Mr Clapham: So you would disagree with the from your members, have any of them suggested view that there is a cultural aspect to this. On the that there is a benefit as well as a cost to regulation Continent—for example France and Germany— and have you taken that into account? they have a much more positive approach to Mr Alambritis: They do welcome regulations in the regulation whereas in the UK it is a more negative competition field to regulate to make sure large approach and hence regulation is not managed as companies do not unfairly compete against them. well by companies in the UK. They welcome regulation to ensure level playing Mr Alambritis: In the European Union they have field, regulations to ensure they are paid on time. what is called Public Law Status where businesses They do see—and they did see—the benefit of the are registered with a major body that negotiates with introduction of the Minimum Wage at a sensible government on regulations. Businesses are brought level in terms of being undercut by rogue companies; into the argument and into the debate from day one. rogue employers are paying pitifully lower money. Let us not forget the German business sector and the They do see that view but because of the 20 or so new French business sector are beginning to make some major pieces of employment legislation over the last noises about the complexity of legislation holding few years they are seeing just that side in terms of too them back when they compare themselves with the much legislation too soon. 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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Q307Sir Robert Smith: Do you have any figures or Q310 Sir Robert Smith: A previous witness had just any more evidence to back up how much resources one concern that it can lead to a peak of consultation have been diverted away from constructive activities in the run-up. Do you share their concern? by the business and towards compliance with the Mr Alambritis: We would rather the certainty of regulations? knowing when something is coming in because Mr Alambritis: The administration time taken to although we have 185,000 members, there are 1.2 deal with both employment regulations and tax million small employers out there and we do have a issues as well is averaging about 30 hours a month tendency to seek certainty and stability. It will also for an entrepreneur on their own on their kitchen help ACAS in their guidelines. I know that Michael table at home after the factory has closed or the shop talked about not going down the regulatory route has closed. That was about 20 hours a few years ago but bring in unions in terms of negotiation. We so the hours have increased. In terms of taking their would also say that if we can avoid the regulatory eye oV the ball and having to attend employment route or the legislation but bring in ACAS and if a tribunals, we have gone from 40,000 employment minister is thinking of a new regulation in the tribunals in 1990 to 120,000 in 2002; it is starting to employment field, talk to ACAS and see whether go up again. That takes their eye oV the ball because ACAS can come in and help direct, cajole, have a they have to spend an awful lot of time to attend and code of practice. We would like to see ACAS at least resourced a bit better for the new world of work. to defend themselves. What we do as an organisation is to provide them with that legal advice and that protection and insurance against the unpredictable Q311 Judy Mallaber: You call for small businesses nature of running a business, which could be a tax to be granted exemptions from much regulation. I assessment or an employment tribunal case. They understand the arguments but is there not a danger are saying that they are having to spend a bit more that that will just create a divided labour market time just doing government paperwork, just making with poor pay and conditions for employees who are sure they have it right, making sure the notice is up employed in the small business sector? on the board, making sure they have sat down and Mr Alambritis: The argument is well made: why met oYcially and had it taped. They have this thing should someone who works in a smaller firm have at the back of their minds that they need to trace and fewer rights than someone who works in a larger trap everything in their discussions with their firm. It is well made and exemptions over the years employees to make sure they do not technically fall have begun to peter away but they are a useful index foul of something. Even though morally or legally in terms of allowing businesses to grow and they are in the right, if technically they have done hopefully will grow to go over the exemption something wrong by not issuing the relevant notice threshold, whether it is 20 or five or 10 and then take at a given time then they know they might fall foul on board those duties. We do feel that in their of the law. They are saying they are spending more infancy there is some scope for toying with the idea time on making sure they are up with the law. of exemption. The classic exemption is trade union recognition: firms with under 21 workers do not have to recognise a trade union. We rather like that, Q308 Sir Robert Smith: Was that 30 hour figure but if you talk to the trade unions themselves they do from a members’ survey? not see much scope in going into all these tiny firms to see whether they want a trade union recognition Mr Alambritis: It is from one of the income data agreement. So there is some scope there. It could be services or peninsular law services, but I can chase it that exemptions have a higher place in the fiscal for you and send you a note. side—on tax, on VAT, on company regulations— and you could veer exemptions toward that area as a quid pro quo for reducing exemptions in the Q309 Sir Robert Smith: Thank you. You are employment field because there you are talking obviously concerned about the volume of new about real people and their rights. We would have to regulations. Will the introduction of regulation days discuss that with government. So you have an V when the new regulations all take e ect together exemption on tax—VAT, corporation—AGM, make it a slightly more manageable process in that whether you have to hold a physical AGM—and people will not have them sort of dripping onto then you barter with exemptions on the other side. them? There is scope for exemptions in terms of allowing a Mr Alambritis: We have welcomed the concept of young fledgling business to grow. One idea we have common commencement dates in employment is for regulations to have a delayed mechanism for regulations in October and April. A lot of businesses small firms. The regulation is announced, it comes in end their accounts somewhere around the end of the for the larger firms for about six months to a year but financial year around 6 April. The first one took not quite yet for smaller firms. In the meantime— place in October of this year but unfortunately quite hopefully through the supply chain, hopefully a lot of other legislation was tacked onto it in that through government information and through FSB respect and that is why it came to be known as “Red and other organisations—we are telling small Tape Day”. Again we need to express our preference businesses that this legislation is in place, it does not for less regulation but where there does need to be quite apply to you just yet but it will in six months’ regulation if businesses know when it is coming they or a year’s time, get ready. In the meantime the can look out for it. I think that is very important. Government can look at the glitches in the 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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30 November 2004 Federation of Small Businesses regulation as it applies to the large firm in terms of right might cost on its own a very small amount of the legislation and perhaps can accommodate it or money, but if you add them all together you might twitch it by having a sunset clause which means they be pushing a firm under. That is the last thing the can review it after a year or two years to see whether employees of the firm want and they usually it is meeting the mischief or achieving the benefit. It understand that. would mean bringing in the smaller companies a bit later. Q314 Sir Robert Smith: The Chartered Institute of Q312 Judy Mallaber: That is interesting but is there Personnel and Development talked to us about a not a danger that exemptions for small businesses pilot being run by the DTI of human resources for could mean that your fledgling businesses set oV firms under 20. Is that a pilot you have had with bad habits and that actually a regulatory knowledge of or involvement in? environment—so long as it is done in a way that is Mr Tyrell: Yes, increasingly we work closely with user friendly, which is one of your arguments—will the CIPD as more and more of their members are enable them to concentrate on having the right set of personnel oYcers in slightly smaller, medium sized attitudes and principles and practices and then companies. What we would like to see is the Job concentrate on actually working eYciently and Centre Plus government agencies having more productively within that environment? thought to helping a small employer in terms of Mr Alambritis: We do not see it that way. A lot of recruitment, in terms of retention, in terms of finding the regulations our members are doing anyway. On a maternity replacement. The large companies are parental leave, paternity leave, on flexibility at work actually very professional but are also very confident in particular a lot of our members said that this is not in replacing a maternity leaver with someone for a having any impact on us whatsoever because we year or a year and a half. For the smaller firm already do this kind of thing. replacing someone for a short period of time they find it diYcult. So we would welcome a pilot scheme whereby something like CIPD, ACAS, along with Q313 Judy Mallaber: So it is the ones that are bad business organisations could come in and hold the that we are trying to stop and they are the ones that hand of the small employer on short term leaver could be undercutting the small businesses who are replacements. That would be very helpful. competing with them down the road who are operating well. Mr Alambritis: The ones that are bad are hopefully Q315 Judy Mallaber: That is an interesting idea. are very few. Unlike the Chambers of Commerce we You are keen to retain the opt-out in the Working have not had a barometer or an index or a costing of Time Directive. You say that the 17 week averaging all the regulations because we feel that for our period does not allow suYcient flexibility. Is that members it is the cumulative impact of the right? regulations they have to deal with that is the burden Mr Tyrell: The new Commission proposals are a on them. Each one is plausible but it is the great advance on the original proposals and by and cumulative impact that could catch out a small employer who would decide not to employ either large we think that small business, our members, will any more or any new staV and just seek some be able to live with the new proposals. This depends reflection or some time when there are not too many however to a great extent on the use the relevant new employment regulations, so everyone could secretary of state in the member state—in our case catch up. the DTI—makes of the options that these new Mr Tyrell: May I add to that answer, please? The proposals give. For example, the new proposal main problem is cumulative eVect. With a large suggests a reference period of 12 months to average company you have a personnel manager and a your 48 hours a week over a 12 month period. If our personnel department who can take on these Secretary of State adopted that option then I cannot cumulative eVects much better than the small see that any small business is going to have any business can. If the stage is reached where the burden reason to have any anxieties. It would be on a small businessman in trying to run his little firm inconceivable that any small business would work in the way that Stephen has indicated earlier on the their workers 48 hours a week for an entire 12 kitchen table on a Sunday morning, the weight months. The time they would work over 48 hours is becomes such that he cannot do any of it properly. under ordinary seasonal pressure or a particularly If you are looking at a new right and asking whether large order that has come in. We think that the new there should be a small business exemption, you proposals ought to be all right. We notice that small have to bear in mind that that regulation must be businesses are going to be able to retain the opt-out proportionate. What might be proportionate for but we are concerned about the 65 hour a week limit large firms in terms of cost, compliance and so on, and that is not subject to any reference period at the will not be proportionate for a small firm. That is the moment. If the 65 hours were also geared to a big diVerence. The small firms always have to reference period then we would be happy with the remember and bear at the back of their minds that new proposals as they have now emerged. I think the some of them live quite near the line when it comes problem is going to be to get our own Government to solvency. Last year there were 43,000 to hold the Commission proposals in the Council of bankruptcies of small businesses. Every additional Ministers. 3055811002 Page Type [O] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

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Q316 Judy Mallaber: Although you are happier with employers have reached a level where they are those proposals you still want to retain the opt-out. content with each other. I know there will be Are you against any limit on working hours; do you problems in minor sectors, in certain sweat want complete flexibility? industries; no-one supports that and it should be Mr Tyrell: Quite frankly we do not really think there looked at very closely. However, we do feel that is a need for a limit on working hours in the small employment relations and health and safety at work businesses because we know that the time when they are now quite good within the UK industrial scene have to work hard is really seasonal work. and in the small firm sector.

Q317Judy Mallaber: So it is not that 48 hours is too Q320 Sir Robert Smith: You said in principle that low a limit, it is more to do with the averaging out your members actually welcomed the minimum and so on. wage, but what view do you have now on how it Mr Tyrell: The 48 hours is the maximum that is should go forward in terms of its level? allowed and is going to be allowed but the question Mr Alambritis: The term we are using is “pockets of is over how long a period will it be calculated. unease” beginning to appear. That is the term we using, that is coming from our members. Pockets of Q318 Judy Mallaber: Are you saying that you would unease sectorally—leisure, tourism, catering sector, prefer there to be no limit on working hours at all? cleaning sector—and pockets of unease regionally— Mr Alambritis: What we are saying is that the north-west, north-east, Scotland, Wales—are just question of working hours, particularly in a smaller beginning to feed through. We do regularly talk to business, is best determined by a fair negotiation and consult with the Low Pay Commission but our with this application legislation in place between the members are beginning to report those slight employer and the employee. If we are arguing that pockets of unease with the latest rises. We feel that there should be protection for workers working long if we do hit the £5 mark then there should be another hours—48 hours and then they have to register if re-think, along with the Low Pay Commission, they want to work more than 48 hours—on the about how to take it forward after the £5 an hour grounds of health and safety, then let us not forget mark is reached. Certainly when the National the self-employed person who may work 60, 70, 80 Minimum Wage was introduced at £3.60 the vast hours of their own volition because their work and majority of our members were paying £4.60 and as it their business demand it. We are happy with the has been creeping up the members have been paying proposals from the Commission with the reference over, but the level of over is beginning to decrease. point; we are happy with the opt-out. I do not think They have met the minimum wage; they were paying that what we are saying is that there should not be above the National Minimum Wage, but we are any protection whatsoever, but where protection is getting those pockets of unease being reported back. put in there should be flexibility, acknowledging that within the small firm they will get it together and they will work those hours where everyone will pull Q321 Chairman: One last thing we might want to together. It is an exciting time within a small firm, for look at is that in a number of respects the regulations example, if it gets a huge contract from its local come from Europe. They are framed in accordance authority and everyone has to pull together, work with European traditions rather than UK. We have slightly longer hours. That flexibility allows the a legislative tradition in this country which results in business to take advantage and perhaps, if the legislation being clear and specific; you know where contract goes well, to employ an extra person. In a you stand, you know how to perform against it. The print firm, for example, they would argue the case European approach tends to be rather more that they need that flexibility in terms of hours. generalised and open-ended and it is for the courts to define it simplistically. How would your members Q319 Judy Mallaber: I can understand the prefer to have it? Prescriptive in the UK style or excitement you are talking about when you get open-ended in the European style, defined something coming on and the business is doing well ultimately by courts? If you have to have it, which and everybody wants to pull together, but that can one would you choose? also be quite a pressure in a small business on the Mr Tyrell: We want it as clear and concise as individual to muck in even if it just does not suit their possible and that is what our members want. They lives at all. How confident are you that the voluntary want to be able to read down a sheet of paper and opt-out is genuinely voluntary and that people are say, “This is what I’ve got to do” instead of having not, in eVect, forced to opt-out. so much of the stuV that comes from Europe that Mr Alambritis: We are very confident that our you have to wade through and try to weigh up members certainly have not forced their workers to exactly what it means and not being able to turn the sign the opt-out. The opt-out was advertised with words that they are reading into specific action. That our members in a big way when the legislation came is what really bothers them. It also bothers them that in. We have seen no evidence of workers—certainly it is not all that easy to get clear advice on the matter amongst our membership—being forced to work because if they ring the appropriate number for more than 48 hours against their will. Obviously the advice, again they are likely to be referred to a TUC may have a diVerent viewpoint. We feel that guidance or something that might be several pages industrial relations in the UK are at their best for a long. The answer to your question is, we prefer our number of years and that workers and their own system. 3055811002 Page Type [E] 13-05-05 22:42:38 Pag Table: COENEW PPSysB Unit: PAG2

Ev 56 Trade and Industry Committee: Evidence

30 November 2004 Federation of Small Businesses

Q322 Chairman: The diYculty is that since we are in Mr Tyrell: We want it to be essentially practical so Europe and some of the employment regulation they know exactly what they have to do. comes out of Europe. Our civil servants are quite Chairman: I am not sure if we are ever going to get often criticised for being too specific, for trying to to the bottom of this one, but we just wanted to have have gold-plated or copper-bottomed (whichever an idea as to what you saw as the nature of the metaphor is appropriate). You want it clear and regulations that we have to address. I do not think specific but not over-prescriptive. Is that right? we have any further questions. Thank you very Mr Tyrell: That is right, yes. much. The session is closed.

Q323 Chairman: Is that the philosopher’s stone, do you think? 305581PAG3 Page Type [SO] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

Trade and Industry Committee: Evidence Ev 57

Monday 20 December 2004

Members present:

Mr Martin O’Neill, in the Chair

Mr Roger Berry Judy Mallaber Richard Burden Linda Perham Mr Michael Clapham Sir Robert Smith

Witnesses: Mr Paddy Lillis, Deputy General Secretary, Mr Graham Markall, Head of Research and Economics, and Ms Ruth Stoney, Deputy Head of Research and Political OYcer, Union of Shop, Distributive, and Allied Workers (USDAW), examined.

Q324 Chairman: Well good afternoon, Mr Lillis. I Booker Cash & Carry, have made a very deliberate believe you are in substitution for Mr Hannett today attempt to distance themselves from the very idea but perhaps you could introduce yourself and your and the image of being a minimum wage employer team and we will get started. and have bumped up their basic hourly rates even for Mr Lillis: Firstly, could I give John’s apologies. the lowest grades to £5 an hour, a very symbolic sum, Unfortunately, he has had to go to a funeral this and put some clear water between themselves and morning and asked me to stand in. On my right is the minimum wage itself. I think you asked for some Graham Markall, who is the Head of our Research suggestion of numbers. We cannot be clear about Department, at our head oYce, and on my left is that because we do not know with any precision how Ruth Stoney, who is our Political OYcer, again many people are within particular grades within any based at our head oYce. one employer’s payroll, but I would have thought it numbers several thousand of our members who will Q325 Chairman: I think you are aware that we have have benefited from a rise to £5. On the bottom rate been looking at the flexibility of the labour market in of the retail cooperative societies, for example, that UK and one of the obvious areas that we have been would represent a percentage increase of 10% to looking at has been the National Minimum Wage 10.5%. That is a significant percentage rise and a because in some respects it could be argued that this significant money sum for people, so I think it is provides a floor for wages, and therefore it could possible to argue that they have benefited directly for conceivably diminish the flexibility of the labour the latest increase in the minimum wage by a figure market. There are other arguments of course, but in excess of the minimum wage itself. this is one that has been raised by some of the witnesses, although it has to be said that so far I Q326 Chairman: In the retail industry how many think all of the evidence has suggested that the workers, roughly, are covered by union-negotiated National Minimum Wage is yet to aVect agreements, either by you or other organisations? employment or for that matter wage inflation Mr Markall: Well, only about 10%. Approximately overall, although there was a suggestion in one piece 90% of retail workers are organised by no-one. We of evidence we received to that eVect. When we organise the vast, vast majority of the 10% who are invited you we were conscious that you were perhaps organised. You would expect us to say that but it is one of the organisations which probably had within true statistically. There are one or two other unions its membership the highest proportion of people in who have what we would describe as a toehold but the low wage bracket that were aVected by the we are known, for good reason, as the shop workers’ National Minimum Wage and we wondered if, for a trade union and we have about 240,000 shop start, you could maybe give us an indication of how workers in membership of the trade union. many of your members have benefited from the National Minimum Wage and perhaps, if appropriate, rises over and above that which have Q327Chairman: If 240,000 is 10% then we are been triggered oV, or whatever metaphor you want talking about nearly 2,400,000 million? to use, in that area? Mr Markall: Yes. Mr Markall: Thank you very much. First of all, I would say that this is probably the first year, with the Q328 Chairman: Of the other 2.1 million, how many rise to £4.85 an hour from October, that our of them are covered but are not members, if you members have felt anything like a direct impact in know what I mean, in the sense that you do not have any wider sense of cause and eVect. In previous 100% union coverage? years, minimum wage increases have been Mr Markall: Okay. The membership we have—the suYciently modest and from a suYciently low base 240,000—are actually sited with a handful of very not to impact on voluntary arrangements that have large employers. The majority of our members obtained across our agreements with the employers are with the likes of Tesco, Sainsbury, the with whom we negotiate. This year, however, I think Co-op Societies, Morrison Safeway, Kwik Save, there has been a noticeable and evident diVerence in Somerfield. Those are the employers where we have that several of the employers we deal with, notably our principal membership, plus some non-food in the retail cooperative societies and companies like employers like Woolworth’s and Argos as well, but 3055811003 Page Type [E] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

Ev 58 Trade and Industry Committee: Evidence

20 December 2004 Union of Shop, Distributive, and Allied Workers principally our interests and our membership is in us that they need to look further at it next year. So the retail food sector and within that in the very large they are in the process of not just smoothing but multiple food retail environment. flattening.

Q329 Mr Clapham: Given the 240,000 membership, which is about 10% of the total workforce, are any Q335 Sir Robert Smith: Was that something that of the employers putting up barriers to you being was going to happen anyway, regardless of the able to organise in their organisations? minimum wage? Mr Markall: It is hard to describe it as a barrier but Mr Markall: Yes and there is a heavy emphasis on they can be demanding. In other words, if their functional flexibility on the shop floor. business is to sell food, with great success, and our Mr Lillis: That is probably the key. It is flexibility business is to sell trade union membership, they and reducing the grades down. They become multi- expect us to do our job and them to do theirs. I skilled, which gives the employer a degree of would not call it a barrier but I think they operate flexibility in terms of managing their stores and with a fairly clear division of labour, although we shops and again it assists us in terms of pushing the obviously argue strenuously that it is in their lower rates of pay up. interests to help us recruit people into the union. They rely on us speaking with authority for “their people”, as they put it, and the best way to do that is Q336 Linda Perham: Just for a moment going back to have them join us. It is in their interests as well as to what we were saying earlier about your ours. That is our view. membership being 10% of retail workers; how does that aVect your ability to engage in collective Q330 Chairman: I take it from what you are saying bargaining? that ASDA is not organised? Mr Markall: It means that we have to be Mr Markall: Not by ourselves. extraordinarily resourceful and highly skilled advocates, quite seriously. I know there was a Q331 Chairman: It is organised by someone else, is stereotype of trade union negotiators as brawny, it? table thumpers, and employers having to roll over. Mr Markall: I think the GMB have some In fact, what we have had to do for many, many membership there. years is to argue from the base of reason, justice, fairness and good business sense, which is the only Q332 Chairman: What I was getting to was whether way we have managed to gain any headway in an or not ASDA under the Wal-Mart umbrella was environment in which we do not have what some behaving like its American counterpart. people would call conventional trade union muscle. Mr Lillis: Certainly there are indications that that is We also have, by design, a very broad bargaining the case and that Wal-Mart is trying to introduce an agenda so that whilst we recognise that handsome Americanism into the way they run their stores here. pay rises are exceptional and almost unheard of in There is still a vast turnover in their employees. Just the retail environment because of employer to come back to the other question on getting access; resistance, we have learnt for a long time now to the 24/7 culture also creates problems for us because bargain across a broader agenda of what matters to the vast majority of the retail workers are part-time our members (not to say that pay is not important) workers working 24/7. Again we have limited which is about worker-centred flexibility, about resource as an organisation so that puts some barrier work-life balance, about family-friendly issues, up as well. about the kind of environment in which people feel valued and central rather than peripheral and Q333 Sir Robert Smith: Just following on with a disposable. Those kinds of gains are as important to question about the impact over and above the our people as, frankly, a rather modest increase in a specific people aVected by the minimum wage. You rather modest rate. At low rates of inflation a two or mentioned how some employers already this year 3% increase on £5 is not a lot of money, it is pence. have seen that their base will be slightly up. Has So whilst it remains important it is not going to turn there been any impact further up pay grades because people’s heads and we have to think more the basic levels have come up? Has there been any imaginatively and extensively about what we can do reference back? to improve working life in those areas. Mr Markall: No, in fact the trend is the reverse. Mr Lillis: On the 10% membership point, obviously diVerent companies have higher degrees of Q334 Sir Robert Smith: Flattened? membership. In some companies we have 50–60% Mr Markall: More than flattened. It has almost membership. We have entered into quite a few demolished grading structures on the shop floor. partnership arrangements with employers, as The Co-operative Retail Societies have done that Graham has just said, handling all aspects of the this year, Sainsbury’s, Kwik Save and Somerfield employment situation not just on pay. We are have done that already, and Tesco’s are in the looking to assist the employer to develop and in that process of doing it. They narrowed the diVerential sense bring that trust into the relationship. Treat the between the two major shop floor grades this year, employees fairly, treat them with a decent wage, and at our suggestion by the way, and are agreeing with hopefully it will pay dividends for you in the end. 3055811003 Page Type [O] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

Trade and Industry Committee: Evidence Ev 59

20 December 2004 Union of Shop, Distributive, and Allied Workers

Q337Linda Perham: Thank you. You note in your industry are still extremely low paid in comparison evidence that employment in retail actually rose with most people. As Graham just pointed out, to following the 2003 minimum wage increase by reach a £5 minimum wage rate with the Co-op and 86,000 in three months. Do you accept that there one or two other employers has been quite might come a point where employment might suVer? significant for us but, keep it in perspective, it is still I do not know whether you have got any research a low wage for the 21st century. that suggests what point that would be, whether you just go for the trial and error approach where the rate is pushed up until employment is actually going Q340 Chairman: You say that the industry is to be aVected? expanding. The experience of a lot of us is that the Mr Markall: We do not have any. No-one has a supermarket comes to town and the wee shops close crystal ball on this. because people find it more convenient, easier to park, they can do all their shopping under one Q338 Linda Perham: Not even any projections? roof—the one payment covers everything sort of Mr Markall: No, I do not think we speculate in that approach. By definition, your members are recruited way. What I would say is I think we would celebrate and organised in the big employers, so you associate the way in which the Low Pay Commission has gone retailing with the large units. The public sometimes about its business in that key role of hearing from all associate them with the smaller units. They do not the interested parties from all kinds of angles about always necessarily associate them with many feelings what would and would not suYce, and what would of loyalty, one has to say, nevertheless we get and would not be threatening in terms of jobs and complaints that it is the National Minimum Wage or viability of businesses. Their watch word has been it is the supermarket that is killing oV the town caution. I think their record to date is clear to see, it centre because the wee shops are closing and that in has been massively successful, it has been flawless, fact all you are getting is a substitution eVect with jobs have been gained not lost. We place our faith in labour going from the small shop keepers to the their decision-making capacity and the mechanism supermarkets. Would that be a reasonable criticism itself for delivering decent but reasonable rises in the to make of the expansion of retailing in the UK? minimum wage which have not impacted on Mr Lillis: If you look at it, the vast majority of the employment. I am not sure there is anybody, apart large retailers have taken over most of the smaller from people who may have a vested interest in retailers that tend to have stores of what we would talking down the minimum wage, that could reliably see as the convenience/corner store type shops. Yes, point to a theoretical scenario in which jobs might be four or five big players are basically swallowing lost, bearing in mind people do come to the Low Pay everything up so in that sense you are right, but then Commission and to this Committee, I am sure, again when people go to shop the big employers have talking about the potential job-destroying eVects of got the bargaining power in terms of the supply the minimum wage, but they would say that chain and buying in cheap and at the end of the day wouldn’t they. Labour costs are a significant element people going to the Tescos, the Sainsburys, the of business costs particularly in the retail sector, and Somerfields, the Quicksaves and the Safeways of the arenas like the Low Pay Commission are one of the world and competition is what is putting the smaller few who can hope to obtain any kind of purchase on ones out of business. their costs in the future. They cannot haggle with the Mr Markall: We have always called for a balanced competition. They cannot aVect interest rates but policy around planning and planning guidance on they can at least hope to try to impact on rises in the retail development. We have put in submissions to minimum wage and contain their own costs in that the Department for the Environment on that front way. I do not blame them for doing that but I think over the years as well. We are simply calling for all their speculation needs to be treated with some retailers of all shapes and sizes to be able to compete caution here. eVectively. Do not forget that many of our members, quite apart from where they work, which as you Q339 Linda Perham: You say the way they have correctly say is in large retail units, actually shop dealt with things up to now has been flawless but you locally and rely on small retail outlets. They are do not think the minimum wage is at the right level, consumers as well as producers and they have no though, you think it could be higher, do you not? interest in seeing suburban high streets go to the Mr Markall: Yes. wall, either as consumers or ratepayers because that Mr Lillis: Absolutely higher. As an organisation it is has a knock-on eVect for the local authority and its certainly in not in our interests to be asking for a infrastructure. We have always called for a balanced ridiculously high rate for the National Minimum approach to shopping policy and strategy and not Wage. We do not want to be in a position where we unduly to favour the large retail employer. In fact, are threatening jobs, but all the evidence, as you some of our most recent campaigns, including one have just mentioned, points to increasing the that Ruth has been involved in, are around violence number of jobs. The retail industry in this country is at work and trying to strip that sense of fear and still continuing to expand and still has for 2005–06 intimidation away from local shopping centres quite an ambitious expansion plan for most of the through more proactive involvement from local top retail companies, so they are still making huge authorities and other authorities to give viability and profits. Our members and employees within the vitality to smaller environments. 3055811003 Page Type [E] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

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20 December 2004 Union of Shop, Distributive, and Allied Workers

Q341 Sir Robert Smith: One point on the private sector, and in most companies where we employment side of retail is how much of it has organise we do have a 16 and 17 year old youth rate grown on the back of the credit boom? If the Bank because those people are not as productive as a 18 of England is keen to rein that in and if the attempt year old who can take on more responsibility is to reduce the burden of debt that people are taking particularly around sales of alcohol and the sort of on, will that turn that employment rise into a dip? responsibility where you have to be 18. We believe Mr Markall: I do not know the answer to that, to be that the £3 an hour rate is far too low and we would perfectly honest with you. All I would say is that the like to see that increased to be 80% of the adult rate kind of employers we are mostly involved with are of the minimum wage, which of course should be the retail food employers and food expenditure is paid at 18, but we do not feel that it is justified to not particularly credit based. argue completely for the full adult rate at 16 in most circumstances. Q342 Mr Berry: USDAW opposes a lower minimum wage for 18 to 21 year olds, as indeed do Q344 Mr Berry: You have mentioned that it may many others. What eVect do you think there would well be desirable that 16 and 17 year olds should be be in the sectors where you are organised of having in education or training. Do you think a higher wage a uniform National Minimum Wage from age 18 for 16 and 17 years olds or indeed 18 to 21 year olds, upwards? What diVerence would it make? would deter young people from continuing in Ms Stoney: At the moment in the companies that we education? One argument against the National organise, practically every single one of them has the Minimum Wage has always been that if you increase adult rates paid from 18, as has always been the case. the price of labour people lose their jobs. We have What we are very concerned about is what has been discussed that one and we have all got our own happening since the introduction of the 18 to 21 year conclusions on that, no doubt. The other argument old rate in some very large companies within the has been that for young people in particular what service sector—and we particularly looked at the happens is that because you are paying them a little fast food outlets such as McDonald’s, Burger King bit more this will deter them from continuing in full- and KFC and in retail the firms such as Dixons and time education or training. Do you think that Currys and the Labour Force Survey also found that argument holds any validity? quite a few of the pub retailers have brought in 18 to Ms Stoney: I think the fact of the matter is that it has 21 year old rates simply because they can and these not. Whilst we are up to about 16% of 18 to 21 years companies employ significant numbers of young who are now being paid some sort of youth rate that people—which is they have started to pay them a is less than the adult rate of the minimum rate, you low wage rate in order to oVset the costs of the rise in have still got 85% of them being paid over and above the adult rate in the minimum wage. This is actually the full adult rate of the minimum wage, and in the having quite a serious detrimental eVect on the last few years, as you know, we have seen massive young people. A lot of them are in full-time increases in the number of 18 to 20 year olds who are education and trying to work their way through their staying on in full-time education. Basically the facts education and the less they are paid the longer hours of the matter do not bear it out. Young people know they have to work and the more of an impact it has there is a direct correlation between the skills that on their studies, so that is one of the problems but they have got and the wages that they can command also once you start introducing pay scales according at the end of that. to age you are saying to people, “We are employing Mr Berry: Thank you very much. you because you are young.” It is in low skilled and unskilled work and there is no incentive on the Q345 Chairman: Do you think there is a case for a employer to train or on the employee to be trained if starter rate in the sense that young people could be they simply get a pay rise when they reach the age of leaving school at 18 and they are no better or worse 22 rather than because they have improved their than the youngsters of 16 in terms of their skills and performance at work. experience? I can appreciate you see this almost exclusively through the retailing prism and in the Q343 Mr Berry: You do support, as I understand it, context of the supermarket and the flexibility of not 16 and 17 year olds being on a minimum wage that being able to sell let’s say liquor might well be a is less than the national minimum wage. You drawback and it may be it can be interpreted as just welcome the extension of the principle to 16 to 17 a movement of cases of drink about the place, or year olds. You perfectly reasonably said £3 is too something like that. We will leave that aside, but is low and I think you have argued for 80% of the there a case that says, well, we are taking on green National Minimum Wage. Why would you not labour, should their starting rate be based on time make the same argument for 16 and 17 year olds as rather than age, six months or something like that? you would make for those who are 18 to 21? Mr Lillis: The vast majority of the agreements that Ms Stoney: In general, we accept the Government’s we deal with have that already in them regardless of argument and that of many people that ideally 16 what age you come in. They will have a three-month, and 17 year olds should be in full-time education or six-month or nine-month probationary period until training. What we do try and do is base our you are upskilled. So that is already there and recommendations to the Low Pay Commission very recognised within the industry. While you are saying much on what we can bargain for in the service you would put in for the minimum wage for the sector in low paid, low skilled industries; and in the younger ones at the minimum rate of pay within the 3055811003 Page Type [O] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

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20 December 2004 Union of Shop, Distributive, and Allied Workers minimum wage is still extremely low. Most of the McDonald’s grouping, the people who are not being employers that we are dealing with are paying above employed 21-plus and being taken on at the lower the minimum wage for their starter rate and after six rate? months they are getting about 30% more than what Mr Lillis: I am sure we can get something for you. the initial rate of pay is. Ms Stoney: We have got figures generally on 18 to Ms Stoney: There is a development rate at the 21 year olds and the proportions of those who are on moment for six months but that is very little used youth rates. For those companies, because we do not because so few employers, certainly in our sectors, organise for them, then obviously they are not going bring in the level of training and qualifications that to give us their employment figures, I am afraid, so people would need to have to qualify to go on that we could not get those. development rate. If some sort of starter rate came Chairman: Okay, but I will tell you what you could in, be it for young people or older ones as well, we do, if you could just identify in a letter all of the would very much like to see it being linked to skills companies whom you suspect are employing people and training because, unfortunately, there is far too at the youth rate in preference to the adult rate little of that that goes on. because obviously if this is a shift in recruitment it might be possible for us to write to them and ask them if there is a change in recruitment as a Q346 Mr Clapham: Do you have any links with consequence of the change in the National some of the bigger companies with regards to the Minimum Wage and, if that the case, how many training and education of younger people coming people have been aVected by their step change in into retailing? recruitment policy, if as you say it is the case. As I Mr Markall: If you mean vocational training in the say, we have no reason to disbelieve you but without conventional sense we have some involvement (and any evidence all we have are your assertions and we it is not my sphere) with the skills councils and with need to get a bit more. I understand why you cannot the designers of the syllabus and so on. We have give us that because you are not in a position to always had that for many years. I think where we quantify it but we will try and get some numbers by have more contemporary experience, if you like, is way of letter. It might cause their HR directors some around the whole lifelong learning question. That is problems over Christmas but we will worry about not restricted to young workers nor necessarily that later! workers who have been particularly unskilled, although the core element of the lifelong learning agenda is around basic skills and core skills. So it is Q349 Richard Burden: I would also like to ask you a the lifelong learning agenda that has actually taken bit about areas where you are probably going to oV amongst our membership rather than a have diYculty quantifying things in the answer. I do conventional vocational training agenda. understand that the biggest concentration of trade unionism is in the larger chains and that is where the vast bulk of your membership is, but in terms of Q347Mr Clapham: So you have had a good either the small single shops, the chains of response from your membership. What about the independents, the smaller chains, and so on, do you employers? have any sense beyond the issue of the youth rate Mr Markall: To be fair, there are a number of about what impact the National Minimum Wage employers who have seized upon that opportunity has been having in that kind of sector, the themselves, not so many in retail to date but retail is convenience food sector? the target industry for us next year. We have cut our Mr Markall: We do not have original data of our teeth in areas of distribution and food manufacture, own. It is not the sort of enterprise we would engage where we also have a base, which has a much more in to see what is going on in areas where our conventionally organised format, so there is an members, by and large, do not work and which we agenda out there around learning and skills but it is are not primarily interested in, but what we do do is possibly not the conventional one in terms of keep a watchful eye on the DTI’s Small Business vocational training and qualifications and so on. Unit to see what is happening to small businesses Mr Lillis: It is fair to say that the retailers have taken there and on their Insolvency Service to see what is to it as well and we have run a few pilots this year happening with business failure and see if that within the lifelong learning agenda and it has been a throws any light on the claim that small and huge success, so we are looking to see that increase medium-sized businesses are suVering, perhaps for 2005–06. Also most of our lifelong learning has terminally, from the impact of the National taken place in the distribution, warehousing and Minimum Wage. It makes quite interesting reading. factory environments where it is easier to organise as 70% of small businesses do not employ anyone so opposed to retail, so there is a lot of work going on when you hear the small business voice go up you there between ourselves and the employers in a joint need to bear in mind that they are speaking in terms eVort to have a system of upskilling people. of the employment eVects for a 30% minority of the small business lobby for a start. That is the first Q348 Chairman: Could I ask you if you have this point. Secondly, if you look at the figures from the information, you may not have it, but do you have DTI’s Insolvency Service about what is going on any figures, or could you get some, for the people with company failure at the moment, you will see who have been in this category that seem to be that the most current quarter’s figures are lower than not being recruited, the KFC/Currys/Dixons/ the one before, this year’s figures are lower than the 3055811003 Page Type [E] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

Ev 62 Trade and Industry Committee: Evidence

20 December 2004 Union of Shop, Distributive, and Allied Workers equivalent period last year and all the most recent Ms Stoney: There will often be a proportion of years’ figures are lower than anything in the years agency workers on sites where we have got a union leading up to the introduction of the minimum wage agreement and Paddy in the field has done a lot of before it even impacted. Clearly it can be contested work on bringing those people into organisation. what the causal factors are there, but I think it is very Mr Lillis: We have been fairly successful in the last diYcult to maintain that the minimum wage is 12 to 18 months with getting union agreements with damaging business to the extent of creating business agencies, not necessarily because they wanted to failure when you look at data like that. Indeed, from have agreements with us but because they were time to time the Insolvency Service runs surveys of pushed into it on the basis of the bad publicity failed businesses to get their account of what on around them. An instance would be a big food earth went wrong and you have to look very hard (in manufacturing company in South Wales and the fact it is impossible) to find the minimum wage cited South West of England who was recruiting migrant as a reason for their business failure. They cite bad workers from Portugal and Spain through an debts, they cite tax liabilities, they cite rents, they cite agency. In fact they were paying them about business rates, and most important of all they cite £2.10 an hour after they had deducted their the competition. So the biggest threat to small and accommodation where they had six to 10 people medium-sized retail businesses is large retail living in one house (of course with the sanitary businesses, not the National Minimum Wage. problems and everything else that goes with it) and had deducted their fares. So it was quite an Q350 Richard Burden: Okay, so in terms of business exploitative practice and we said to the employer failure you do not see any evidence of a correlation? whom we had an agreement with that bringing in Mr Markall: No. agency people is not acceptable, which resulted in getting meetings with the agency themselves and Q351 Richard Burden: What about in terms of being able to arrive at an agreement which protected employment levels amongst the 30% of smaller those agency workers but also protected our businesses that do employ others? Have you seen members, the core employees, so that it would not any citing of evidence there? undermine the agreed rates in the particular Mr Markall: Again in the survey that the DTI factories we are talking about. We can do good by commissioned only last year into small businesses on getting involved with some of these agencies and a range of fronts, including their employment profile getting an agreement in place, which not only and practices, when they asked small businesses who protects the agency workers and migrant workers employed no-one why they employed no-one, to be but also protects our own workers in this country fair they had some vague notion about red tape but and ensures that they are not having their wages they could not specify what they meant and when the undermined. minimum wage and Working Time Regulations were prompted to them only 3% of people who Q354 Richard Burden: Have you seen or sensed an employed no-one said that was the reason why they increase in the employment of migrant or agency employed no-one, so it does not seem to be a major workers? disincentive to employment. Mr Lillis: Certainly on the food manufacturing side there is a high percentage of agency workers who are Q352 Richard Burden: Can we come on to the other migrant workers and in the lower skilled areas as side of that equation, that is the question of well, which we keep a close watch on, especially in compliance in areas that you do not organise in. the areas where we have got agreements because it Have you got any sense of how far non-compliance can, as I said, undermine our collective agreements may be an issue, particularly amongst smaller if they are paying a lower rate of pay, and that is not retail outlets? in anybody’s interests. Mr Markall: I think Ruth has something to say about that. Q355 Richard Burden: The way that you tackled that Ms Stoney: Obviously, as Graham says, we cannot was to use the route you already had, in other words monitor what is going on in companies where we do a recognition agreement with the company to get not organise and we do not have a foothold. It is very through to the agency. Getting back to the issue of important that the minimum wage is properly smaller shops and retailers, is there anything you enforced. Where we do encounter problems with think could be done to, first of all, generate more compliance with the minimum wage it tends to be information about the extent of compliance, and around not the retail sector but the non-retail, larger perhaps actually generate higher rates of workplaces where agency workers are used, either compliance? Do you have any contacts with, say, where there are UK workers or more especially chains like Spar or trade associations like the where there are migrant workers having unlawful Association of Convenience Stores? Do you have a deductions from their wages or not being given dialogue with them? proper holiday pay and entitlement, and those are Mr Lillis: Your department writes to them from the problems that we encounter with compliance time to time. with the minimum wage. Mr Markall: Ruth, do you want to talk about that? Ms Stoney: We do tend to have dialogue with Q353 Richard Burden: That is an area in which you associations like the Association of Convenience organise? Stores, and through them we will look at policies on 3055811003 Page Type [O] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

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20 December 2004 Union of Shop, Distributive, and Allied Workers the minimum wage. I think there is quite a high level Q358 Judy Mallaber: You say it is a reference point of awareness about the level of the minimum wage not a prescription, but I recall the arguments when which is very helpful. Obviously there is more that it was argued that the minimum wage be set at two- can be done to bring that message home to people thirds of average earnings and the illogicality of that who work for small employers. Often there are not because it just raised the average earnings level. very many of them and there is very little trade Mr Markall: No, it would not. It was a median organisation or back-up anywhere in the sector to average not a mean average. support them if they are looking to increase their wages and they feel they have got a problem, but Q359 Judy Mallaber: We could go back over history generally it is not something that we would work on. and it is quite a long time ago, but on the argument about using the median, are you saying that is something that although you would presumably say Q356 Richard Burden: Is there anything extra that the Low Pay Commission should still have you feel needs to be done by government or anyone discretion, that you would like them to take that as else to either increase knowledge or awareness or to a specific formula that they should look at? improve mechanisms for ensuring compliance? Mr Markall: Yes, I think it is worth putting into the Ms Stoney: I think that ensuring compliance and pot, but I would be wary of doing anything that ensuring that employers keep proper records would smacks of prescription or of in any sense be extremely helpful all the way through, both on downgrading or devaluing the role of the Low Pay things like the minimum wage but also when it Commission and that kind of mechanism. I think for comes to keeping benefits in place, that sort of thing. those of us who campaigned in advance of the 1997 Chairman: Judy Mallaber? General Election, at a time when we were talking about a formulaic approach there was a great period of enlightenment when the idea of a government that Q357Judy Mallaber: My apologies for being late was acting like “Big Brother” and waving a stick and and missing the earlier part of evidence. I will pick it telling employers by prescription what it should do up in the transcript. It is snowing in Derbyshire! You was not a terribly clever thing to do and the seem to be suggesting in your evidence, although I mechanism that the Low Pay Commission oVers, am not altogether clear, that maybe the National which is a tripartite mechanism with employers and Minimum Wage should be tied to median male representatives having the opportunity to make a earnings. Is that an actual recommendation you are case and have a hearing but then most importantly making and, if so, could you explain why that take ownership of the outcome, is absolutely crucial, would be? and I think when we talk about median levels at the Mr Markall: The question arises almost moment it is simply as a reference point trying to commonsensically when we talk to the Low Pay guide the debate. Commission or in general; “what do you think the minimum wage should be?” rather than just higher, Q360 Judy Mallaber: So did you pick that as a and we cited the median not as a prescription but as suggestion to be looked at because it seemed to be at a reference point and we located the reference point about the right level of pay or because you thought in the old Wages Council orders. The Wages Council there was actually a logic to using a median? system governed pay and conditions in what used to Mr Markall: There was a logic. As I said, we had to be called the ‘sweating trades’ for decades until they try to find a point of reference in our mind and a were largely abolished in the mid 1980s and entirely realistic anchor to answer the question; “what do abolished a few years later in the early 1990s. They you think it should be?” We chose that anchor used to provide for certain basic rates of pay, among because it was the kind of proportion that used to other things. They tended to be pitched at around prevail all down the years, certainly until the Wage the proportion of the median that we recommended Councils were lost. There seemed no good reason in our submission to the Low Pay Commission, so not to address that as a way forward going into the all we were trying to do was actually repair some of future, not least because it repaired the damage that the damage that was done to people with the had been done. abolition of the Wages Council and use the Wages Council type of rate as a reference point. Bearing in Q361 Judy Mallaber: On the Low Pay Commission mind that the unions are often accused of thinking itself, you obviously like that approach; are there of a number and doubling it and making it up as we ways in which they work which you would like to see go along, we actually tried to anchor ourselves in them do diVerently or are you pretty satisfied with what had been the basic levels of protection some the mechanisms that they use and the work that years ago and refresh them, and that gave us a figure they do? in the range that we cited to the Low Pay Mr Markall: This is a fair question. We are delighted Commission, which is not to say we dispute the role with what they have done so far. We may say go a of the Low Pay Commission and that forum in bit further, go a bit further, but I do not think recommending a minimum wage. We absolutely anyone could detract from the way they have champion the Low Pay Commission but we have to operated, the caution they have exercised and the start somewhere when it comes to talking to them prudence they have brought to bear. I think the fact about what we think is fair and reasonable. that the Government has embraced, by and large 3055811003 Page Type [E] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

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(not entirely) what the Low Pay Commission or is it more the psychological type of injuries? Is has had to say, certainly on adult rates, is a stress a problem? If so, are these physical and recommendation of their way of working. psychological injuries, shall we say, more relative in Mr Lillis: Also what they have done for the million the larger companies than the smaller companies? of workers not covered by collective agreements Mr Markall: With respect, I am going to pass to with trade unions. It has helped bring their wages up Ruth to answer this because she has headed up an so that has been a big positive as well. enormous campaign around this question that bears on the kind of pressures and stresses that people are Q362 Chairman: Two small things there. One, to under in the retail environment. Can I do that? what extent do the views you have just expressed enjoy currency with other unions in the TUC Q365 Mr Clapham: Yes, certainly. because your evidence is a wee bit diVerent from Ms Stoney: Our Freedom from Fear campaign has what we have seen from the TUC? looked very much at the massive issue of violence Mr Markall: The TUC is a confederation and people and threats and abuse against shop workers. It is a have diVerent priorities. Some will talk about a job that involves an incredible amount of skill in money sum, some will talk about a formula. We are dealing with the public, and in dealing not only with principally a supporter of the Low Pay Commission criminals who try and target retail but also with and that way of working. aggressive and abusive customers, and those stresses place enormous psychological strain on people. We Q363 Chairman: One other question, your members have had a lot of evidence and I do not think we have who are currently in these jobs are very often on the found a single shop worker who has not suVered minimum wage, so what is the point in being in a certainly from verbal abuse during their working life union if their wages are going up anyway? They are and many of them suVer this on a daily basis, and it not going to go up by very much but what is the makes it a very diYcult part of the job. It is also a point of being in a union, or is that a question I very strenuous job. Within a four-hour shift, a should not be asking? check-out operator will lift a tonne from a sitting Mr Markall: The answer is something I wear as a bit position, and this has very serious implications for a of a medal really. It is because being in a union is lot of our members with manual handling injuries, about a lot more than your basic rate of pay. All the and particularly for women who are pregnant it is surveys that engage people about why they do or do a very serious problem. There are both the not join a trade union show that the people who join psychological and stress pressures, particularly on do so for protection and defence at work, and that the violence and abuse side, for people in has always been so and it still is, and that is about a management roles. Retail management is one of the lot more than basic pay, particularly in an arena most stressful occupations you can have because you where anything like a handsome pay deal is unheard are dealing not only with the pressures of a very of. We are talking about percentage points above competitive sector but with aggressive and abusive inflation for the most part in retail, and not people as well. something that is going to have people turning cartwheels. What we have to do, as I think I Q366 Mr Clapham: Can I ask in relation to what you mentioned earlier, is to extend our bargaining said there about pregnant woman et cetera in the agenda to the whole range of fronts that matter to seated position at many of the check-outs, have you people, and they do matter. We listen to what our had any input at all into the design of seating so that members say, strangely enough. For donkeys’ years people get more ergonomically designed seating? they have been saying, “I cannot get someone to Mr Lillis: Yes, our own health and safety mind my kids and get to work reliably.” “I hate it department has worked with most of the big retailers when they are ill and there is nothing I can do about over a number of years in terms of design, involving it.” “I don’t like the way my manager keeps employees and members in that, so in particular we chopping my hours.” Those are the kind of issues we work closely with the likes of Tesco’s on the design have to engage in as much as anything else. of any product that is going to be used by staV, so yes Mr Lillis: Those are some of the bread and butter there is quite a bit of co-operation. It is in issues but the other point I would make is USDAW everybody’s interest. as a union has continued to grow year-on-year by a 10,000 or 12,000 net increase. Even with the Q367Mr Clapham: What about common law turnover we have of 60,000 or 70,000 members, we damages, do you refer cases to your solicitors? Is it are still getting a net increase of between 10,000 and one of the issues, for example, that you are able to 12,000 each year, so there is evidence that people campaign on? continue to join unions as opposed to not. Mr Lillis: I think for the vast majority of the trade union movement in terms of free legal services, it is Q364 Mr Clapham: Before I turn to the Working one of the big pluses that people have because of the Time Directive could I just ask a question in terms of high cost of legal services. If you join a union there what you had to say there, Mr Markall, about trade is a free legal service there. I think compensation unions being much more than wage rates, relating to recovered last year was just over £1 million for our the health and safety of retail workers. Is health and members. We do not want to be having to recover safety an issue and, if it is, is it more an issue related that, we do not want our members injured, but it is to physical injuries such as the lifting type of injuries a fact of life, it does happen. 3055811003 Page Type [O] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

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Q368 Mr Clapham: Can I turn now to the Working This was among a body of muscular, male drivers Time Directive. Do you have any information on where the stereotype would tell you not to expect how it is impacting on your members? that kind of feedback. There was clearly some very Mr Markall: We have conducted two pieces of real impact and damage being done to their lives by survey research in the last 12 months, one with our the kinds of hours and shift patterns they were road transport drivers. They are the people who expected to work. drive the very large vehicles who will be covered by the Road Transport Directive next March but who Q372 Sir Robert Smith: How is the current practice had been entirely excluded from the scope of the progressing? There is quite a lot of talk about Working Time Regulations until August 2003 when enlightened employers working round people’s they were only partially included, so in terms of the school day or family commitments and flexible length of the working week for a heavy goods vehicle rostering especially in the retail sector. There is talk driver, who are even now completely unregulated, of that; I just wondered how much of a reality it is. there is regulation on driving time but not working Ms Stoney: Just to come in on that, I am working time. We conducted a survey of them about 12 currently on USDAW’s Parents and Carers months ago to see what their experiences of the long campaign, so we are looking at a lot of these issues. hours working were and we also conducted a survey Obviously in retail and the service sector as a whole very much more recently in August/September of it is a major problem in that the busiest times are at this year of people in what we broadly term “white the weekends and in the evenings when particularly collar” occupations where we felt long hours of people with parental responsibilities have the most working may have been an issue, and the way in problems in being able to work and they want and which they accessed or were refused access to the need to spend their time with their children. So there opt-out and how those long hours came about and are serious problems around that. A lot of retail under what conditions and so on and so on. I am contracts are now being changed so that people do happy to pass that information to the Committee or have to be quite flexible around when they work and to try and encapsulate that for you as well if you the experience varies company to company. We are have got time. finding that a lot of companies are needing to bring in flexible hours contracts where people work from Q369 Mr Clapham: That would be helpful. Can I a core of a low number of hours and then have to flex just ask in relation to the opt-out, did your surveys up at times when it is busiest in the run up to find that employees were coming under any undue Christmas but that then they are struggling when pressure to opt out? they are on low pay in those low hours. In the best Mr Markall: Of both groups, about 30% told us they cases then—and it may vary from store to store and felt they had been put under pressure to work long manager to manager—people may be able to input hours. Road transport drivers could not have been themselves when they are able to work and the store put under pressure to opt out because it simply was will try wherever possible to work round that, but not relevant for them, they were not covered in the obviously in the worst case scenarios it is far more first place, but both groups felt pressure to work long prescriptive about when they are rostered to work hours and in the case of the white collar workers to and it is much more diYcult for them to swap shifts opt out of any 48-hour control. So there was some and to change. clear evidence that that was happening. Something like a quarter of the white collar people believed Q373 Sir Robert Smith: So flexible working is getting when they entered the job that working long hours worse for people. You are saying in the good store was a condition of employment. That is not to say with the good manager there is an input from the the employer was hoodwinking them but maybe person aVected who can maybe take advantage of saying they did not know any better, and certainly the flexibility but in the bad or medium store with an there was a problem there. okay manager? Ms Stoney: In our members’ experience, flexibility is Q370 Mr Clapham: And that is contained in the a dirty word because it is flexibility in the interests of surveys that you did and you are going to let us the employer not of the employee. have them? Mr Markall: Absolutely. Q374 Sir Robert Smith: What is the trend at the moment? Is it getting worse for the employee or— Q371 Sir Robert Smith: Can I expand on the Ms Stoney: I think we would find that it is definitely working experience. How much of it is also about getting worse because of the increased competition the anti-social hours rather than the length of hours in retail. Because retail customers tend to swap and that people are having to work in the 24-hour change and use their market power, then the amount lifestyle? of time that specific stores are able to allocate on Mr Markall: The two can be one and the same thing their staV often depends on the turnover, either in very often and certainly the evidence of the drivers the preceding weeks or in the period going up to that, that reported to us about the impact on their social so a manager will never know how many person and family lives was quite extraordinary and some of hours they can oVer until they know what the it was very moving. The extent to which their turnover of the store has been and then they have to relationships had collapsed, their children had create their rotas and shifts based on that number of grown up and they had never seen them, and so on. person hours and it can go up or down from week 3055811003 Page Type [E] 13-05-05 22:43:08 Pag Table: COENEW PPSysB Unit: PAG3

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20 December 2004 Union of Shop, Distributive, and Allied Workers to week, which creates serious problems with when it comes down to the shop floor level there are interaction with the benefits system as well as for immense pressures on everyone, and the corporate people with caring responsibilities and people just policy goes out the window. trying to pay their mortgages from week to week where they have got a varying amount of income. Q376 Judy Mallaber: Can I just ask on that last issue They will quite often try and take second jobs but whether you have managed to do any analysis of that is very diYcult to fit in where your hours are responses by employers to requests for using the new varying. This is one of the reasons why job flexibility in terms of having children? Have you satisfaction is decreasing because people have much done any analysis of what the response has been and less control over their hours and their pay. how far that has been taken up by large stores? Ms Stoney: We are currently trying to analyse and get evidence from our members who have requested Q375 Mr Clapham: Are there any employers that flexible working on what the response has been. stand out as being much more, shall we say, Obviously in general people are more likely to come compassionate than the others? to a trade union if they have been refused a request Mr Markall: What Ruth said is accurate but what but we are certainly getting very high levels of you may find is it is in the nature of large retail requests being refused and our union reps, who are businesses that you could have a very progressive trying to support people in the workplace in both policy at corporate level, and there are employers successful and unsuccessful requests for flexible who fit that model, but by the time it finds its way on working, particularly for mothers who are returning to what could be several 100 shop floors, if it is a to work after having a baby, are finding that there large retail enterprise, with goodness knows how are very high levels of refusal of people’s requests to many thousands of management teams, the message work flexibly, and the figures that the DTI have gets a little wobbly and the practice is rather brought out of 90% of requests being accepted is diVerent. It is true to say that there are some certainly not our experience and we are looking to employers now who are keen to understand what bring together a body of evidence of when that policy is refused to show what our members’ they call “their people” better, to make it easier to experience has been. work for the “business concern”, as they put it and Judy Mallaber: Thank you. to be more attentive—very ambitiously on paper— to the needs and interests of the vast number of Q377 Chairman: I live in Edinburgh, a city of nearly people who are on their payroll. It is easy to be half a million people and they have four or five big cynical but they are only doing and saying what supermarket chains. Do people move within the generations of trade union people have told them: chains or do they move from one company to treat your people well and you will get a more stable, another? The “voting with their feet” syndrome. Do less costly and more productive workforce, and at you have instances of people who go from, let’s say, least at corporate level some of them are trying to Tesco’s to Sainsbury’s because they are not getting embrace that message. It is easy to be cynical. They the flexible working in the one and they might get it have colonised everything else. They have colonised in the other. If you have membership in one the the clock 24 hours, they have colonised out of town, names will crop up again so does your database they have colonised the competition. They are now throw up that sort of information? turning to the last body of people where they can Mr Lillis: Our database does not throw it up. gain a competitive edge and it is the most diYcult However, we are in the process of doing work on body of people, the people with hearts and minds. that because clearly with 60,000 or 70,000 turnover Nonetheless, some of them are extremely intent on in our own membership in the retail sector it is in our making sure they win those hearts and minds and interests to try and reduce those numbers. Certainly that is what we are in the business of helping them as a local oYcial going round a store you will meet to do. people in Tesco’s who have left and six to eight Mr Lillis: The fact we launched a Parents and Carers weeks later you will meet them in Sainsbury’s or you campaign for 2005 and beyond is in some respects to will meet them somewhere else. They tend to have test some of the corporate policies that they have on breaks for specific reasons. They will leave for three flexible working. One of the core issues that impacts or four months and then go to another retailer but for us is the high turnover of staV in retail, which most of them tend to stay in the retail environment. puts immense pressure on the managers in running Q378 Chairman: Okay. I think that has covered their businesses. Again, it is a two-way process, it is virtually everything. I think there are one or two having to work together to get solutions not in terms points we would like you to get back to us on but we of flexibility one way just for the employer, but will be in touch with you. We will probably not be flexibility to ensure that our members, their putting pen to paper until early in the New Year and employees, have the flexibility for their care and duty if you wanted to send in anything that your research to their families, their children, the elderly, the has thrown up we would be very grateful and very disabled, and bring that in. We can all work together happy to receive it. to that end. Some of the big retailers are working Mr Lillis: We will certainly do that. quite closely with us on this. I think Graham is right, Chairman: Thank you very much. 305581PAG4 Page Type [SO] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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Tuesday 18 January 2005

Members present:

Mr Martin O’Neill, in the Chair

Mr Roger Berry Miss Julie Kirkbride Richard Burden Judy Mallaber Mr Michael Clapham Sir Robert Smith

Witness: Mr David Arkless, Senior Vice President and Executive Board Member, Manpower, examined.

Q379 Chairman: Good morning, Mr Arkless, and come from the UK originally. I spent much of my welcome. Perhaps you could start this morning by career with Hewlett Packard and also a consulting telling us a wee bit about Manpower and about the company which was acquired by Manpower. kind of people with whom you deal in the course of Initially I was responsible for running Europe your activities. in Manpower in global marketing and then Mr Arkless: Thank you for the invitation this our mergers and acquisitions strategy and morning. Secondly, sorry if I look slightly implementation for four years, and on completing threadbare but I broke six ribs on Sunday so if I look most of the acquisitions that we wanted last year a little bit tired it is because I have not slept and this we created a new function in the corporation is my first outing. called corporate aVairs which is responsible for governmental relationships, international Q380 Chairman: We will try and not make you relationships, thought leadership, Manpower laugh then! Foundation and corporate governance. Mr Arkless: Please do not make me laugh or sneeze or cough. Any of those are not welcome! Q382 Chairman: Fine. One small point, what sort of share of the market (or it may be markets) do you Q381 Chairman: Thank you very much for coming. have in the United Kingdom? How do you stand in Mr Arkless: My pleasure. I will tell you a little bit the pecking order amongst comparable agencies? about Manpower. Manpower is a global human Mr Arkless: We are just about the largest in the UK. resource and specifically staYng company. We have been around for 50 years. We are an American Q383 Chairman: We have been talking to a number corporation quoted on Wall Street under the ticker of people about various aspects of the flexible labour symbol MAN. We have had various representations market and how European Directives are in the US to change our name from Manpower, but intervening and changing the character of it, and the as it is a generic term we stick with it. We are present one that we really wanted to discuss with you this in around about 80 countries. Our traditional morning was the Agency Working Directive because business was temporary services. We started in the we have had somewhat of an apocalyptic forecast US and then spread to Europe in the1950s and from the CBI, the lead employers’ organisation, and 1960s. Over the last 10 to 12 years we have diversified we just wondered what your take was on AWD as it our business significantly and become a $14 billion is currently being promoted or looking? revenue corporation and we have moved very much Mr Arkless: We have got the benefit of looking into away from traditional temporary services/high street both the European economy and the United staYng into managed services, executive search, Kingdom’s economic performance from the outside placement, selection services, psychometric testing to a certain extent. Although the UK is a significant and assessment, oV-shoring, out-sourcing, in- market for us changes in legislation of this nature— sourcing, co-sourcing, managed services. Just pick AWD—would not be Apocalypse Now. There are one of the phrases that you know and love and we do some good things in the AWD. There are some very most of it. Our business today is characterised at the good things happening in European legislation with top level by relationships with large global regard to labour employment and social policy. corporations which represent around about 40% of However, there are some parts of most of bits of our revenues. These kinds of arrangements involve a European employment legislation that have been full range of human resource services, from tabled or reconsidered at the moment that are organisation, consulting, human resource strategy, inadvisable and will not help assist or promote organisation re-engineering, through to the European productivity and growth. My first view provision of appropriate skilled people in the right whenever I look at a given labour market or place at the right time in the right configuration in economy—and I am an adviser to the Chinese many countries in the world. Naturally our focus government, India, Australia, the United States’ over the last three to four years has been working State Department and a number of other with large corporations in shifting work on a global organisations on employment strategy and policy— basis or reconfiguring it within corporations. That is is to say what is working and what is not working. It Manpower. What do I do? I have been with seems to me that it is pretty inadvisable to break stuV Manpower about 14 years. I am a Geordie Swiss that is not broken already. Why fix things that are because I have lived in Switzerland for 20 years but not broken. When I look at the UK and the 50 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Manpower quarters of economic growth, the 12 years that you assignments but we are also a responsible employer. have outstripped euroland in terms of growth, I The placement of an employee of ours into another think some of that is to do with the particular nature company does not take away our responsibility to of flexibility which I think contributes to treat that employee correctly, and to give them the productivity in the United Kingdom. In my opinion, right benefits, the right skills and the right training. the UK labour market is one of the most Where I think the problem could lie within this appropriately flexible markets in the world. It is not sector, if indeed there is a formalised sector because like France, it is not like the US, it is not like the there are all sorts of services provided, is with certain Netherlands; it is in many ways a unique market organisations and companies that do not treat their which we think today actually operates very well. If people as employees with employment contracts and you would like me to focus on AWD and come down give them all of the rights and benefits of being to issues that are of concern to organisations like employed. I have the same concern as you in that ours—and bear in mind we are talking about the full area. Because these people are not employed by an range of human resource services here not just the agency or a contractor and where they are put into provision of temporary workers—it would be a company, I believe the person could be treated like concerns over things like user pay, concerns over a commodity and they can be traded around like a implementation of measures with regard to commodity. When an employee belongs to an equivalence of compensation, benefits packages, agency like Manpower they are our employee and and it would be the application of qualification we take that as a serious commitment to the periods, what that means, how they get implemented individual and to the organisations into which we and the consequent impact upon what is a pretty place our people. I think that is one of the critical healthy economy in the United Kingdom. issues in this whole raft of legislation. One of the Chairman: Thank you. Richard? most destructive issues would be to erode the potential for us to be an employer because we take that as one of our more serious responsibilities. Q384 Richard Burden: Obviously you would take the view that agency work contributes to flexibility of the economy and through that to productivity. Q385 Richard Burden: I think my colleagues will However, the point is also made from a number of explore the issue about whether the employer should quarters that it can also contribute to discouraging be the agency or the undertaking that is employers from making a long-term commitment to commissioning the agency and also the concerns you their staV or taking on permanent staV that they have about aspects of agency working directly, but I might otherwise do and that that in itself would be was interested that you said there that there are parts to the detriment of longer term productivity. How of it that you actually welcome and that you do see would you respond to that? the need for protection for temporary workers in a Mr Arkless: I think it is tough to characterise a number of areas. Could you say a bit more about grouping called ‘employers’ firstly because you have which are the bits that you welcome and also how many, many diVerent configurations of employment those concerns that you have outlined about and employers, many of which operate in diVerent exploitation could actually be met other than ways. They say that the power house or the engine of through the Directive as it is? How would you economic growth in any country is small to medium- protect workers? sized enterprises. If you look throughout the UK at Mr Arkless: On the last one, you are opening up a the variation in the behaviour and the characteristics whole series of discussions with regard to of those companies, they diVer vastly. Then you step contractual treatment and the structuring of up to large corporations and global corporations. It employment but I will get to that in a minute. If we is my estimation from looking at the UK and Europe look at the parts that we welcome, we believe that that we have got to look at employers in a number every—what we call productive and potential— of segments. First of all, large corporations that participant in the workforce has a right to be trained have pretty good strategic planning, tactical and developed, have a lifetime career and to gain implementation, who understand what the relative meaningful, additive work. That is one of our core benefit of flexibility is and its impact on productivity values and principles. Along with that we believe and the usefulness of a contingent or flexible and we have signed up to many, many international, workforce. Some large organisations plan this stuV global, United Nations, International Labour OYce pretty well. It is my experience that when we get into projects and initiatives to ensure that workers are private enterprises of a small, creative nature that not exploited on a global basis and in Europe. there is a whole variety of approaches to engaging Exploitation takes many forms. It takes the form of the workforce. It is clear—and it is one of the reasons economic exploitation and we are concerned about that I welcome some of the measures in the AWD— that. It takes the form of exclusion which is a kind of that abuses in any part of the workforce in Europe exploitation, excluding people from the workforce. are possible by employers. We are fully in favour of We believe that people should be adequately protecting workers and ensuring that employers represented by an employer fully and if they so wish fulfil commitments to employees. Remember, by a union, and that is completely their right, and Manpower are an employer and we are in fact the we believe that the inter-relationship between world’s largest employer employing more than 3.5 government, unions and employers is absolutely million people full time worldwide every year. That critical to the eVective functioning of the labour might be quite a lot of millions in terms of market, so with regard to representation we believe 3055811004 Page Type [O] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Manpower that should be guaranteed. With regard to basic agency commissioning there or a reputable agency human rights, basic work rights, we believe that commissioning there, are you saying there should be those have got to be written into every form of no regulation at all from the Agency Working European legislation. What we welcome about the Directive to the user undertaking, it should all be to AWD is the potential control of the shady part of the the agency itself? industry in Europe because it does exist. Potentially, Mr Arkless: We would like to see the acceptance that there are hundreds of thousands of small agency agencies are employers and fully-fledged employers. providers throughout Europe that really cannot act That is my number one principle. With regard to and do not act in the best interests of employees and that, I think that would clear a lot of the lower-level do not act as employers, so we welcome the control operators that we do not think give the right kind of of the sector at an appropriate level. We also commitment to employees out of this sector if it was welcome the potential spread of the provision of incumbent upon agencies to be the employer of agency workers’ services across the public and individuals, which is not the case right now. Some private sector in almost every industry segment, agencies, as you know, deal with people just on a which is a part of the provision of the AWD, so placement as an agent basis, so forcing a situation broadening the presence of employer-based agency where the agency must be the employer is beneficial work across Europe is good. It is no secret to any of and that would help a lot of the poor behaviour at you that the European economy is not doing as well the bottom end of this industry. Your second as it should and parts of the European economy are question? characterised by extremely long-term job tenure in permanent jobs and very high measures of social and job protection for employees. I also find it strange that when you compare Europe with some other Q387Richard Burden: My second question concerns continents like North America you would say that whether or not it is one of the poor performers, the comparing the two models of employment—the cowboys, or whether it is a reputable agency in social protection model in Europe generally and the respect of user undertaking as the place where the job creation model in North America generally— employee is actually placed. Are you saying that one would assume that European workers feel more there should be no legislation at all regulating that confident of keeping their jobs and remaining in end of the relationship, that it should all be to the their jobs whereas in places like North America, agency or that there should be some and it is just not where you can be given one day’s notice and maybe the regulation that is implied in the Directive? if you are lucky you will get four or five days’ pay, Mr Arkless: I think that I would focus regulating of you would think that people in the workforce in the sector mostly on the agency end. I think there are North America would be insecure. It is just the certain things that are absolutely required as an opposite. I brought a small report that we prepared, extension of employment law throughout Europe which you might be interested in, called Getting at the user end because we are all aware of Europe to Work which we prepared in partnership unsatisfactory situations in terms of long-term with the European Policy Centre of which we are contracting employment where there is no board members which says let’s look at the most equivalency in organisations of pay, salary, benefits eVective employment models in the world, let’s look and there have been quite a lot of cases mentioned in at the ones that make workers feel more secure and, the press, in the international press, in US court contrary to popular opinion, long-term job tenure cases, and Congressional investigations into transfer does not make workers feel secure. What makes of undertakings and such like, so I think there is a workers feel secure is the capability of finding new requirement for control at both ends of this jobs at the right kind of levels. Finding new jobs provision in the supply and demand spectrum, generally means creating jobs and flexibility really absolutely. does help promote economic growth which creates jobs and I would be pleased to give you this report at the end. I can send it to you electronically. I think Q388 Sir Robert Smith: Taking you on from there in it states a very important case not just for the UK terms of the demand for control at both ends—and but for Europe with regard to future employment in a way you have shown quite an enthusiasm for legislation. Sorry, to get back to your question. The certain rights—what sort of qualification period issues that we welcome are the control of the sector would you be seeing because the debate seems to generally and, secondly, the potential application of revolve around that? flexibility in many more areas from which we are Mr Arkless: I think an interesting place to start is to excluded at the moment. look at current practice and use of flexible labour. The average temporary contract worker has an Q386 Richard Burden: I am still not clear in terms of assignment of longer than six weeks on average and the regulations what you see as being beneficial in less than a year. It would seem logical to me that the sector to deal with the cowboys—and I do not there is some responsibility for a user employer in the know if you used the word “cowboys” but that was end to, quite rightly, determine that this job is implication of what you are saying. First of all, what permanent or it is not. Given the statistics of would that look like, what is the regulation that you utilisation of flexible workers, I think a logical time see as appropriate there and, secondly, in relation to period to give the employer to decide that is 12 the user undertaking where there is a “cowboy” months. 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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Q389 Sir Robert Smith: I think you have answered construction and light industrial process most of the other questions already. If the manufacturing and then a smaller proportion of qualification period is 12 months that would pretty administrative staV. So it is driven very much well cover it and then after the 12 months subject to around Europe by the application of employment the caveats you have made? law by various governments and certain interesting Mr Arkless: I would say that anyone would be able regulations and rules. to decide whether a job is permanent within that kind of period of time. The interesting thing is people say that 12 months is almost a lifetime today Q391 Chairman: Before you come in Robert, just on in work. Indeed it is, but there are many flexible this point then would you say that a European-wide contracts for work that corporations pick up in Directive can really be capable of addressing local small- and medium-sized companies where the labour market situations one country against absolute requirement can take up to a year to fulfil another or within one country on that basis? Is it a the contract and many of the ones that we get bit ambitious? involved with are of that nature where a tech Mr Arkless: I think it is extremely ambitious and if company takes a special contract that needs a special I look at the raft of legislation—AWD, Working piece of something developing or a special Time Directive, the Services Directive and a few productivity increase for a period of time, not just on other more eccentric pieces of legislation that are a seasonal basis but over a period to complete a being written and tabled at the moment—I would contract, and we think to remain competitive we say virtually impossible for uniform application. Why do we see so many opt-outs, why do we see need that kind of flexibility but indeed at the end an V employer really has to say, “Okay, it is time this negotiations on sidelining di erent pieces of person became a permanent employee.” legislation? I think what we are struggling for in Europe is a sensible and balanced view of Sir Robert Smith: Thank you. employment growth. We are really struggling with it. Germany is a disaster. It has the highest total cost Q390 Chairman: You hinted there that there are envelope of labour in Europe, is the worst on diVerent types of people whom you employ. What is employment and the worst on job creation. They are the breakdown of your range of worker clients and going backwards. If we have got any kind of uniform how many of them are in better paid, high tech jobs employment strategy in Europe, please, let’s apply it which might fall into the category you described to Germany, and it might help the rest of us. there, and how many of them are people who are filling in for others, who are on holiday relief, who Q392 Sir Robert Smith: On that diVerent kind of are by their nature almost itinerant, they are in for work you do, would the people at the very high- six, eight, 10 weeks and then move on somewhere earning end prefer not to be called employees? You else? were saying that all people whom an agency places Mr Arkless: I am not a great fan of the word should be employed by the agency. Are there not ‘itinerant’ but I know what you mean. The certain people with certain very specialist, high- proportion of short-term assignments—replacing value skills that would prefer not to be working for somebody on vacation or where somebody has you? resigned today until you find a permanent employee Mr Arkless: Those people tend to place themselves which is usually what I call light industrial level into the individual contractor status so they do not process workers, admin, support staV—has fallen normally even come to an organisation like ours quite rapidly over the last five to six years in the because there are plenty of jobs for a highly qualified business, which is why we have specialist and specialist information technology or financial information technology divisions like Elan in the services expert in the City and around the UK and UK which only supply high-end IT workers. I would what they tend to do is get involved in their own say the split today on light industrial admin peculiar form of internet-based labour arbitrage and compared to what you would regard as higher paid, there are labour exchanges for high-level qualified more technical domain expertise-type workers is domain experts in the UK and elsewhere and they around 60:40 but then it is split very much into tend to operate in a world that we do not touch. I customer segments where the business we do for think that is another area that needs a very, very instance with our largest global customers does tend, close look by any legislators that are developing strangely enough, to be at the more specialist and labour legislation because the individual contractor more highly technical and qualified end of the scale area is one of the areas where I would look to for whereas our SME business in a place like the UK more regulation because the area in general gives the does tend to have a slightly larger proportion of potential for lots of abuse in terms of working hours, administrative, oYce support and light industrial in terms of treatment of the contractor, in terms of work. Again if you compared the UK to a place like the return treatment of the supply into the user France which is our largest revenue country in the company, so it is a very interesting area and a big world (not America which is where we are based and one. headquartered) every day we might put 175,000 people to work in France, and most of them in France because of the nature of French regulation Q393 Chairman: It seems to be an area that is so and the structure of industry, with their 35-hour specialised and highly paid that you do not get working week, tend to be in agriculture, involved in it. Is that correct? 3055811004 Page Type [O] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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Mr Arkless: We get involved in all sorts of areas that person’s performance and general ability to do the are highly paid and specialist—research level PhD job. If you look at the complexity of how you judge scientists, a search for Phillips in Eindhoven for that it is usually the following items if you look at instance, lab technicians for Hewlett Packard any job evaluation performance scheme. It is a laboratories. There are all sorts of high-level jobs we mixture of job knowledge, a set of competences to do do get involved in but usually those relationships are the job, some domain experience in a wider area and characterised not by the individuals who work in knowledge of the company itself and its operating them for us into the user company but by what the systems. I have had many employers throughout user company wants, and typically a user company Europe say to me, “There is no way I am going to would say, “I have got this special technical project pay your contractor or temporary in my company that is going to last six months. I cannot use these the same pay rate as my person that is on holiday”. high level people afterwards. I want them to be your I say, “Why, because they have got all the employee, Manpower, so that you can cycle them competences?”, and the user would say, “Yes, but back into a university to do more research or you can they do not have the network, they do not have the cycle them into another company that requires relationships, they do not understand our culture, specialist or domain expertise.” they do not have the experience”. I know that there are thoughts about building into this in terms of user pay a potential set of pay scales which is fraught with Q394 Mr Clapham: One of the interesting aspects of the same danger. All employers will do is stretch the the UK economy and an aspect we have not been pay scales. If you say, “Okay. This person comes in able to remedy despite legislation in the 1970s is, of at the bottom quartile of the relevant pay scale for course, equal pay. How would you interpret the the user pay of that job”, they will just stretch the pay AWD’s reference to equal pay? scales. You can find an updater to stretch pay scales Mr Arkless: This is a corking one. I love this. We wherever you want. I see diYculty in working out for could be a couple of hours on this one. In short, I a comparison with the user company the correct pay Y think the notion of user pay is terrifically di cult to rate and the administration, the bureaucracy, to be implement. For my sins I spent three years running able to enforce that and control it. Secondly, what a compensation benefits consulting firm so I used to should determine the pay rate is supply and demand get heavily into how you assess a rate on a market, and we know that every day by transacting people how you internalise it into the company and then from one place to another. We know what the pay how you determine internal equivalences. I cannot rates are, so we find that for a large number of our see a method of legislating equivalence of pay jobs they are on higher pay rates than people in the without immense bureaucracy and that is my user company and we can justify that because not concern. Generally we find—and please understand only do we provide a more skilled person under that I am not talking about workers but about pay certain circumstances for a highly specialised task rates here—that wage rates are a commodity on the but we also have to demand more in the pay rate for market and they are driven by supply and demand, that job because we need to run our own company. supply of the skill, demand for the work to be done, We train and develop them, we give them career as you very well know. Very often it is a lot easier for paths, we give in many cases back-to-back job us to specify a market rate for a job, be it technical, employment for years to temporary people from one specialist or a special kind of admin or financial organisation to another. Do not forget that in the service every day because we deal with thousands UK this industry creates more than a million jobs a and thousands of jobs and we know what the pay year. Do not forget that most of the employers that rates are for the market. We often have a much more we have polled in the UK say, “If we could not accurate shot at what the right pay rate is than some have temporaries we would not hire them as companies that have their own internal pay scales. permanents”. If we take the flexibility away I think As you know, company strategy on remuneration is the bureaucracy embodied in some of the aspects of driven not just by market rate supply and demand user pay is so complicated that the companies would but also by the possibilities of investing in pay or just say, “Forget it. I am just not going to do it”. remuneration by that company, its state, its That is the reaction that we are seeing. I like the evolution, its strategy and what it intends to do with notion of equivalence. I cannot see any measure its capital. There are so many considerations when which would allow it other than to say that in the end Y you are in a company. I would find it very di cult to the market decides and that gives you approximately be able to specify a methodology to determine user the right pay rate for an individual. pay. For instance, I could place the same technical skill in a large corporation in the City of London that would be at rate X. The same job in a small to Q395 Mr Clapham: That is interesting. From what medium size enterprise somewhere also in the City you are saying you see the agency as the comparator might have a 25% diVerential. Who do we compare? but as to whether the comparison is to be Do we compare people against the market rates or implemented it is left up to the employer? do we compare people with the user rate inside a Mr Arkless: Actually it is going to be left up to the company and then, when we get inside a company, I legislation in the end and the employer will try and find it very tough, given the structure of how you implement whatever the legislation is. I know from arrive at internal pay rates, to determine what the polling our large customers that the employer’s view user pay would be. I will give you some examples. is, “We want flexibility with the right pay rate, with The issue of a pay rate should revolve around a the right skills of the person for the appropriate 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Manpower amount of time we need to increase our productivity involved? Are we going to see long discussions and or get this specialist job done. Do not allow people to dialogues taking place about what are the features of take that away from us”. If you were to do a detailed equivalence? survey of pay rates between temporaries and Mr Arkless: Absolutely. That scares me to death. I permanents you would find a whole range of people have seen papers prepared already by some top in diVerent companies with the same skills doing the Brussels legal firms on behalf of employers with same job at a vast variety of pay rates. Then there is regard to the fact that they are stating that there is a user pay. We have user pay in one company, as I very sound case already to say that parts of the said, with comparators in inner London, and then AWD are discriminatory and illegal. There is a you move to Reading and then to Newcastle and whole raft of legal interventions potentially out there then to the south west of England. What is the right for the future of this directive, I believe. rate for the user pay? Generally one of the other very productive roles we play is that we know the Q398 Richard Burden: You put a fair deal of employment market on a local basis and can advise emphasis on the complications of comparisons at employers about supply and demand and about the the user end of things and establishing equivalency, pay rate. We do that on a daily basis. Our service and I understand what you are saying there, but you reps are trained to do that with their customers. One are also saying that the agency should be regarded as of the interesting things is that our customers that the employer. How do you establish any equivalency are in a long term relationship with us say to us, if the agency is the employer within the agency? I will “You decide the pay rate. I am not even going to give you an example. You have two people on your compare it with anything internally. This is special books that have identical qualifications, identical work. This is an increase in productivity that I talents, but you place one of them in a City firm that need”. It is short term in some cases and they are has got a high pay rate and the other one in a City more than willing to pay a higher pay rate. In many firm that has got a slightly lower pay rate. Therefore, cases we must apply more than the logical pay rate within your employment relationship you have a for the job because of our overhead and employers disparity. What is your obligation to those accept that. employees to ensure that they have, with a small “e” and a small “o”, equal opportunity? Mr Arkless: It is an outstanding point and we have Q396 Mr Clapham: A little earlier you were talking an obligation to do the following and this is what we about the features that you see as being included in do every day inside our company. If you think about the job. Would you see, for example, in that it this is the most basic commercial common sense in comparator template the inclusion of the the world. We basically are a company that occupational pension? generates its revenue from pay rates and a mark-up Mr Arkless: I think it is everyone’s right to have a on top of the pay rate, or a multiplier, as it is called. pension. I think it is one of the reasons that agency Clearly, the higher value jobs that we can place companies need to be employers. I think it is very people into the better it is for our business. What we responsible to provide a pension. Do not forget that will attempt to do is to take workers through a range throughout Europe if you polled every agency of progression and the range of progression (and worker (which has been done) almost 40% of them they usually go in parallel and hand-in-hand) is want to do agency work because it suits their increased skills, increased learning, great flexibility, because they do not want to work full curriculum, giving them more capability; therefore time, because they are older people that want to we can place them in higher paid jobs. There is no come back to work, because they are disadvantaged sense in us having a massive discrepancy between people who, through specialist schemes, we put to two workers who can do the same in diVerent work, and they just do not want traditional companies. Typically what we will try to do (and employment. That is 40% of the eight million people very actively) is migrate workers through that work in this industry full time every year. There successively higher paid job rates and then fill the is a huge amount of people out there who want jobs that they have left with workers who are coming flexibility. However, I think that as an employer we up the skills and performance scale. For us that is a must fulfil our employer obligation and give normal part of our business. Is it possible for us to them access to pensions, insurance, training, practise equivalency inside the temporary service development, cut-price gym membership, all sorts of agency? I would say it is about as practical as doing stuV. The other one on equivalency that is a real it inside a large corporation. It is complicated, there problem is that many of our temporaries have better are regional diVerences and you will find that benefits than many of the user companies that we employers are remarkably adept and skilful and put them into, so if there is a mandated equivalency creative in achieving whatever objective they want on benefits packages I am going to be asking some and I am sure that they can change job descriptions, of our employees to reduce their package and I do pay scales, pay rates, to suit the requirements of the not think they would like that. company. That is what is happening. Companies always re-engineer their remuneration systems to suit their commercial reality and that is not going to Q397Mr Clapham: Given, from what you said, that stop. To pick upon the agency and say, “You are not it is a very complex area, do you foresee it being a practising equivalency”, I would say yes, we are, in ground in which we are likely to see many lawyers as much as every other company in the world 3055811004 Page Type [O] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Manpower practices equivalency and it is not in our interest in Department of Work and Pensions, and try and any way, or the industry’s, to hold people in lower recruit people there? Would you be interested, even paid jobs when they have the skills to get higher pay although it was within certain rigidities that you rates because that is the business we are in. would not encounter in the private sector? Mr Arkless: First of all, one of the most productive Q399 Chairman: Is much of your client base routes with regard to public sector productivity in accounted for by the public sector: by local future is the potential of public/private partnerships authorities, the Health Service and the Civil Service, which are developing in many of the largest and if it is, do they exercise that degree of flexibility? countries in the world, if you look at some of the Mr Arkless: That is a very interesting area. Of the models of sourcing employment flexibility through million jobs that have been created by this government and private sector partnerships in Government in the public sector, we have just heard places like the US. Also, interestingly, we are in the last couple of days that quite a lot are engaging in programmes with the Chinese disappearing and we would like to oVer our help in Government on helping them within their public outplacements (and we are one of the largest sector. I think it is an area of terrific productivity outplacement companies in the world) for the right improvement within the United Kingdom. The management because we know the right person to answer is yes, at the minute they go to government contact. I would be delighted to get in touch with agencies and on certain occasions, I think for the them. The UK Government is interesting in terms of slightly more specialised jobs, they go to outside its public policy with regard to flexibility. I see a lot agencies. There is a continuum of recruitment here. more of the flexibility in UK public services going to It is not just temporary services; it is also the companies that are willing to fully undertake the temporary contract/permanent service. Let us not outsourcing of the work, companies like Capita, forget that in this industry one of the most terrific who take whole swathes of public work outside of benefits of having employers like us is that most the public sector and provide people, buildings, people that take up temporary employment within a provision of services, on an output basis. Typically year move into permanent employment, which is a we would try to supply companies like that. terrific asset for any economy to have. I see the full range of that within the public sector in the UK but Q400 Chairman: But you do not supply the it is by no means practised with uniformity. It is by Department of Work and Pensions or the Child no means seen as a natural area for an organisation Support Agency who may have shortages? as a commercial organisation to look for Mr Arkless: Not in great numbers. productivity within flexibility. I think it is a great area to focus on. Q401 Chairman: Is that because you do not seek the work? Q403 Judy Mallaber: To be absolutely clear on this, Mr Arkless: We would seek the work if it was there. to make sure I am following you right, in terms of The point I was trying to make was that it seems to equal pay, for someone who is placed in an end user, me that the public procurement strategy tends to you are saying they should not necessarily be given take pieces of work and move them out of equal pay with the person doing the same job in that government circles rather than have what I call employer, and similarly you are saying that your internal flexibility to the degree that some mechanisms within the agency for one of your staV corporations have. Yes, I think it is a very additive to have equal pay with someone else employed for potential practice and yes, there is some of it on a exactly the same job by your agency but in a diVerent small scale but not to any degree. Also, let us just end employer will not be there. Are you saying that reflect that in many parts of Europe we are precluded equal pay should not operate for practical reasons or from the public sector in lots of areas. on principle because it is not flexible? It seems to be going totally against any concept of equal pay for Q402 Chairman: What I was trying to get at is that which I have campaigned for decades, so I find this you have made the point that one of the ways in slightly upsetting. which you address the challenge of equivalence and Mr Arkless: I am sorry to upset you, but, looking at quality is that you try and place people. You kind of the practicalities of equal pay, it depends upon compromise between the demand of the market and personal capability, company performance, the individual skills. That seemed to be what you individual performance, positioning in lifetime were saying. One of the issues that might arise is that experience on an area of main expertise or technical within public sector employment there are clearly expertise. I am not disputing, nor even stating, the identifiable pay scales, there are qualifications, and fact that fair pay is not the right thing. Fair pay is there might be, it could be said, a degree of absolutely the right thing and the market decides inflexibility, of inbuilt rigidities in the interests of what fair pay is. To say that because we pay person transparency, ideas of fairness and the like. Let us A in this company this rate for 13 years someone say that a government department, which is not in entering the company should immediately have the the business of outsourcing and going down the same pay I think is nonsense. That is just my Capita route, has shortages of people to undertake personal opinion, and no employer that I have certain tasks. They cannot do it internally. Would talked to accepts that principle at all. Today I think they come to people like you or would they just go the issue with regard to balancing pay with to the government employment exchanges, the productivity, output and growth is probably one of 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Manpower the most critical issues in any company today. The global economies is that we are not competitive from issue of pay should be driven within a range, and a general pay rate and flexibility point of view. If you maybe that is where we are looking for look at all of the foreign investment there has been equivalencies, so that there should be ranges, in the United Kingdom over the last 10 years, much potential open to individuals to do certain kinds of of it has been because we have got a skilled jobs with certain career patterns and with certain workforce. Some of it is for proximity economics kinds of competences. How do you decide within a because for American companies value for money is range of remuneration, which is usually measured wanted in the European market, in the UK, but against outside market values, where the person some of it has been made on the assumption that should be positioned? those companies, as they do in other countries, can get similar flexibility in their workforce, as they do Q404 Judy Mallaber: That is fine. I will move on. It elsewhere, and once they run their employment cost envelope calculations, flexibility, a capability to lay is a principle objection. V Mr Arkless: I understand your principle. people on for a specific job and then lay them o , have them go somewhere else and then come back later, is critical to those global corporations. I am Q405 Judy Mallaber: Have you got any indication as concerned that if we solidify the employment to how employers would respond to the directive? structures within Europe we are going to diminish Are they likely to recruit fewer agency staV because foreign direct investment. That is one issue at the it is going to be more expensive? What is your top level. assessment? Mr Arkless: With regard to the general reaction in Q406 Judy Mallaber: I am a bit unclear. Would your some companies, the larger ones, it is much more of estimate be that the Agency Work Directive within an economic calculation. They are looking at the those factors you are describing would lead to the absolute economy of provision and labour and recruitment of fewer agency staV? flexibility and saying, “If bureaucracy is going to Mr Arkless: Fewer agency staV and this would not cost us that, if the pay rate is going to cost us that, if be translated into permanent employment. your overhead is going to cost us that, we probably are not going to do it”. Here is why that is important. We deal with maybe the top thousand corporations Q407Judy Mallaber: How would they then cope in the world and we work with them on moving with fluctuating workloads if they were less inclined pieces of work and employees from one place to to use agency staV? another. As you know, one of the more serious Mr Arkless: We would then have the same situation challenges for Europe is to sustain foreign direct throughout Europe regarding some of the more investment from outside Europe, the magic triangle socially protected, longer job tenure countries in of government spending, exporting, foreign direct Europe. Companies would grow more slowly. They investment, creation of jobs with productivity. would not expand. They would move things There is nothing complex about developing a elsewhere, outside of the EU. Foreign companies productive economy, at least I do not think there is. would not invest in the EU in the way that they have Foreign direct investment is critical. When we talk to done in the last 10 years. those companies, the global thousand, they today make decisions on three principles, and we have Q408 Judy Mallaber: But how would the individual surveyed this. Although this sounds a little bit employer respond to not being able to use agency globally strategic, it is critical for the UK economy. staV? How would they recruit their people? The decisions they make are very similar across all Mr Arkless: I think they would be creative and look those corporations. When they look to invest in a for some alternatives which would potentially lead geography or a country they will look for three to greater exploitation of individual workers. There principles: number one, a stable government and are all sorts of smart things that they can do and I government policy; number two, consistent have tried to make a list of, if I were a creative investment in infrastructure that enables business to employer, what I might do if I did not like the work more easily; and number three, great human Agency Workers Directive. It is stuV like whole resources and talent. That is not rocket science. That work sub-contracting, fixed term service contracts, is what I would look for if I were starting a company. individual contractor status, terminal contracts, We asked them to break down the aspect of, “What regularly changing job titles every two months. They do you mean by great human resources and talent? would be very creative, I think, at the expense of Do you mean appropriate, adequate, from schools, employees and I think what you are taking away universities, technical colleges, the right skills at the from the individual if you remove our potential to be right time in the right place?”, and the answer is, a large scale employer is the way that we are “Yes, of course”. “What else do you look at?”. They custodians and guardians, I think, of the status and also look at a mixture of things between government the rights of employees. What we see here is a policy and work, which is, does the government have disintegration of the irregular workforce, as some policies in place to promote flexibility of the people call it, people who do not want permanent workforce? It is very good, variable utilisation at a employment with one company down to the competitive pay rate, so they eVectively look at that. individual level which, as we said earlier, is One thing I am concerned about deeply with regard characterised by some high level technical experts to Europe and our poor performance against other that just arbitrage their way round the workforce for 3055811004 Page Type [O] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Manpower the highest pay rates they can get and as long as they just to do with the skills they have got and the are good they can do it, but a lot of those people do experience they have got, but it is to do with not make any provision for retirement benefits, behaviour, it is to do with the way the company insurance, the whole thing. I just get very concerned works and sometimes it just does not work. about diminishing our ability to be a responsible Therefore, I think for all of those reasons, extra employer, and I think other employers, if the AWD skills, fitting the job, employers finding out that the is too restrictive, would just get into creative hyper- temporary contract has turned to a permanent one, drive to the detriment of employees. I think all of those are reasons why there are so many translations into permanent employment. Q409 Mr Clapham: Based on what you have said, would you characterise your approach then as the Q411 Mr Clapham: Nevertheless, skills are unions refer to, as ‘flexicurity’, that is, flexibility important and training is important in relation to with security? productivity. Mr Arkless: Absolutely. In fact, we have worked for Mr Arkless: I would agree. many years with the International Labour OYce in partnership to drive the concept of flexibility with Q412 Mr Clapham: Given that fact, would you responsibility into as many countries as possible in support the mandatory right to training for agency this world. This is of no relevance to today but the workers? work that we are doing in India, the work that we are Mr Arkless: Yes. doing in China, is fundamentally helping reform not just employment structures but the whole social Q413 Mr Clapham: Presumably because you see that security systems into slowly a much more as adding to the prosperity of the economy and responsible employee orientated system. That is adding a feature of dynamism? absolutely part of our core values in Manpower. Mr Arkless: I start from a grubby commercial point That is what we do. of view which says that the better I train people, the higher-value jobs I get them into frankly. It is not Q410 Mr Clapham: We need to get you working in totally altruistic, but as a principle, if you look at the mining sector of China where there is an North America, what is happening in North enormous number of accidents each year. Could I America is that the average skills of the workforce take you to the point you made a little earlier about are moving up increment by increment. Everyone is temporary workers who are in jobs for about a year talking about all of the jobs that are being oVshored, actually translating into a full-time job and relate outsourced and re-engineered, but the fact is that that to training. Where people do that, is it because more jobs are being created in North America than there is training available for them when they go into have been outsourced, many, many more. the company and, as a result of that training, they Outsourcing and oVshoring in North America has are able to move from temporary to full-time created jobs in North America. The average pay rate employment? there is moving up and the pay rate does not move Mr Arkless: I think there are two things. Remember, up just from inflation in North America, but it I said that my recommendation for qualification was moves up because people are fulfilling higher-skilled 12 months. I think as you go through a year, many jobs and if we can engineer that by any mechanism, organisations will decide that what they thought was better training, better development, we must do it. a temporary assignment or a project does actually The single biggest issue for training and education in sometimes translate into a permanent job, so then every developed economy in the world today is lack they make the decision and that is nothing to do with of synchronisation. Why are there so many unfilled training because usually for those project-related jobs in Europe? Why did Germany have four million jobs, they want a fully trained person already unemployed, but 300,000 unfilled IT jobs last year? provided for the flexible employment and contract. It is madness and it is the same in just about every Certainly if I take a company like ours, we have got country. We have an inability to fit the vocational 1,100 skills and vocational training schemes that skills output with the right number of people hours every one of our assigned temporaries has full access in the correct vocational areas to fit into the market’s to and most of them these days are Internet based needs for jobs. I think the issue is not just providing and they can work at home while they are working in the training and the development at the right time their job or their assignment to improve their skills. I and the right place, but it is synchronising it think a lot of employers like the notion of what we accurately with market needs at the right time and I used to call when we were young lads the ‘trial think we really need to focus on that. One thing we period’ in a company and that is where you used to do simply because we provide so much training; I sign on for a company and you used to have a full think in terms of people hours for training, we are trial period after which if you were the right person, the biggest trainer in the UK, strangely enough, you would be translated into a permanent job. I because we have everyone training most of the time think many employers see one of the roles of and one of the issues is that people actually perceive agencies as being able to provide people for almost a lot of benefits apparently through training. We see a trial period and not just whether they have the a benefit out of better pay rates, but individuals see skills, but whether they have the right culture and a better career path, better potential returns and they behaviour for the company because, do not forget, feel better about themselves. I think one area which very often the match of the job with the person is not would be great to focus on in European labour 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Manpower legislation is the provision of skills and vocational ship their employees from one to the other or is it training because we have not got that right in that they use in-house agencies as a way of Europe, so I fully and absolutely support that. regulating their workforce? Mr Arkless: They use both of them and I think they are very opportunistic. I think a necessary control of Q414 Mr Berry: You said that agency workers are the transition from part-time contractor and typically employed for longer than six weeks, but temporary to permanent staV is a critical hinge- less than a year and you made the comment that it is point, or should be, of this legislation. I think it right that after 12 months, employers have an really is critical. obligation to decide whether or not a post should be permanent or not. How, therefore, do you react to Q417Richard Burden: I just want to be clear on what allegations that there are some employers who keep you are saying about the relevance of the year. Is the workers on long-term, temporary contracts to implication of what you are saying that once a reduce their costs? temporary placement goes beyond a year, it would Mr Arkless: I do not think they are allegations; I be reasonable to deem that the employment think they are absolute facts. I think that employers relationship at that point switches to the user who do not behave correctly absolutely do that and employer and it would be reasonable for legislation I think we have all read of quite a few cases in the to deem that? City, for instance, in some of the higher-level, Mr Arkless: Yes, absolutely. financial services jobs and information technology jobs. I am fully in support of introducing measures Q418 Chairman: One thing we just touched on was where many employers make the hard decision to the issue of ‘flexicurity’ in that. Now, the country say, “This job really now is permanent. I find I really which seems to embody this within the European have the obligation to take this person oV the Union in its labour market practices is Denmark, or agency’s employment books and on to my books so we are told and we are going there later on. Does because this person deserves the long-term your organisation have any experience of the Danish investment and return”. situation? Do you operate in Denmark? I am just asking because is it one of these areas where flexibility and security are not inimical to the Q415 Mr Berry: How do the big corporations in the activities of the organisation? City then get away with it? What is the cause of Mr Arkless: We have a fully-fledged and featured market failure which has not enabled the market to Manpower organisation in Denmark. Denmark is work in this case? interesting because they do have this pretty eVective Mr Arkless: Clearly people get away with things for mix of security and flexibility which still seems to two reasons: one, lack of regulation; and, two, lack work. I think if you go and talk to Danish of policing, I think. If there are regulations that employers, you will find out that they believe that prevent certain practices, they will probably happen there are ways the market could be more productive on the basis that some employees, for various short- and they could have more productivity in the market term or medium-term financial needs or strategic because they do characterise certain parts of the needs, will be, I think, exploited and I think security bit as being overbearing. Also let’s not regulation of those cases is absolutely essential. forget that it is a bit dangerous to compare small Secondly, and this is where I have some diYculty in economies with big economies, small groups of the whole of the contracting and general employer workers, and frankly Denmark is small for workers, employment law, is how do you police that stuV?It with large economies. I think they can operate and is very, very bureaucratic and very diYcult, but in function diVerently. principle we have got to find measures to control it. Q419 Chairman: Thank you very much. That is very helpful. Q416 Mr Berry: Is one of the causes of the problem Mr Arkless: Can I leave this paper for you? I will that some of the larger corporations deal with a very send it electronically as well. small number of specialist agencies and basically Chairman: Yes, thank you. 3055811004 Page Type [O] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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Witnesses: Mr Tony Dubbins, Deputy General Secretary, Mr Tony Burke, Assistant General Secretary, and Mr Mike GriYths, National OYcer, Amicus, GPM Sector (formerly GPMU); and Professor Keith Ewing, Professor of Public Law, Kings College, University of London, examined.

Q420 Chairman: Good morning, gentlemen, and can Mr Dubbins: Indeed. Since the merger on 1 I welcome you here. I think I should probably start November, we are now the only union operating in oV by declaring an interest in the sense that I have our sector. The sectors vary very considerably. In the had a longstanding connection with the GPMU in paper sector I would guess that the union the past, or, at least when sponsorship by unions was penetration is well over 90%. Most of the companies the appropriate expression, I was sponsored by the we deal with in the paper sector are very major, GPMU, although I have to say I am not quite sure multinational companies. In the converting and what the appropriate word is now, but since I am not packaging sector, it is somewhat lower than that and standing at the next election, any support that the our estimate would be around 85 to 90%. When you Labour Party might have had from them will not be come into the mainstream printing sector, which is in the form it was in the past, although that is the sector which is dominated by small- and another matter, but I think I should just say that. medium-sized companies, my guess is that our Can I welcome you here this morning and make the penetration there is around the level of 70%, and point, Mr Dubbins, before I ask you to introduce moving into the newspaper sector, which was the your colleagues, that we would like to look at, on the subject of the widespread derecognition campaign one hand, the flexible labour market and we have a during the 1980s, we have now restored our number of questions relating to that, and then we recognition in the entire production area of would like to move into the somewhat uncharted newspapers, except for the provincial arm of the seas of union-busting which in some respects is the Daily Mail Group, so the production side of flip side of the flexible labour market insofar as it newspapers is now again pretty highly organised. aVords privileges and benefits to employers which We are assisted, it is fair to say, in industrial relations may or may not be deemed to be to the detriment of terms from the point of view of joint regulation by workers, and that is one of the issues we wish to the fact that we do hold national agreements with the explore with you. Perhaps before we get any further, paper employers, with the converting employers and Mr Dubbins, you could introduce your colleagues. also with the printing employers. There are no Mr Dubbins: Thank you, Martin, and, like yourself, national agreements in the newspaper sector. The I certainly will not be standing at the next election printing employers are around 50% of the printing either, so it is a similar situation actually. On my left employers in the UK, perhaps a bit higher, and in is Tony Burke, our Assistant General Secretary, and membership of the BPIF, the largest employer’s on his left is Mike GriYths, one of our national federation in terms of the number of employees, I oYcers, and on my right is Professor Keith Ewing would guess they actually employ over 80%, my who has been advising the union over a number of guess would be, of the employees in the industry. years on labour law and labour legislation and The BPIF again is dominated by small- and particularly with relevance to small business. medium-sized companies. The national agreement, I think it is fair to say and I am sure both sides of the Q421 Chairman: Perhaps you could just put into industry would openly admit, has stood us in very good stead throughout some very diYcult times and context where you stand in relation to the union Y Amicus of which you are now a section because I did very di cult periods, a heck of a lot of technological make reference to the old organisation and I change and a heck of a lot of structural change in the understand that since October there has been a industry as well. The national agreement is really a change. two-tier agreement. It provides a baseline for the Mr Dubbins: We merged with Amicus along with industry as a minimum wages and conditions UNIFI, the bank workers’ union, on 1 November arrangement which is renegotiated annually, but the 2004 and we are now the GPM sector of Amicus. As actual wages and conditions in the plants are far as our collective bargaining industrial side is roughly around one-third higher than that provided concerned, it is an autonomous sector within for in the national agreement. There is a second tier Amicus and of course we are very much a part of of bargaining at local level which adds on to the Amicus as far as administration, finance, political national minimum standards which are set. The relations and everything else is concerned. agreement provides for very widespread flexibility, productivity arrangements, hours and shift arrangements. It is now the subject of a considerable Q422 Chairman: If we could just move on then to the renegotiation. We are in the process with the industrial role of the union; as I understand it, you assistance of Professor Frank Burchill of operate within a number of areas, printing, paper renegotiating the national agreement to take and graphics, an industry in its broad sense because account of some of the further changes which are it is dominated by small- and medium-sized happening in the industry. That has been going on companies. What is your penetration of the sector? for several months and we anticipate it will reach What percentage do you have and what percentage conclusion hopefully successfully early next year. of wages and conditions do you organise for them in the sense that obviously you will have areas where you do not have 100% membership, but on a reduced Q423 Mr Clapham: So we have got quite a diverse membership you have organising rights, so maybe industry. Given that there is a lot of competition you could give us an idea of the membership and there and employers of course can ease the situation general penetration. of competition by non-compliance with 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Amicus, GPM Sector employment regulations, are you able to monitor Mr Dubbins: It has got an extremely bad reputation employers’ performance with regards to compliance and I have to be frank and say that some of it is to employment regulations right across the industry warranted. We have a high incidence of overtime or are you only able to monitor the compliance in the working and part of that is due to customer unionised sector of the industry? requirements and a rapid change in customer Mr Dubbins: In the unionised sector of the industry requirements. Everybody, particularly when it we certainly can monitor compliance. In the non- comes to stealing a march on their competitors in the union sector of the industry it is much more diYcult publication field, is looking for shorter lead times and it is really anecdotal evidence. That evidence and diVerent publication times, but I do not think comes to us when we are organising and recruiting that is the main problem. The real problem is in the people to take into membership and the small and medium companies where, it would be fair circumstances that we find which are very often to say, the wage levels would tend to create an standards which are below the national agreement incentive to our members to work overtime and to standard and very often of course it is other make up their money by overtime working. That is employers drawing to our attention the fact that not true in the medium and larger companies. they are suVering from the competition from Frankly, the overtime culture in the medium and someone who is not applying a level playing field, so larger companies is down to an inability or an there is an interest from other employers in assisting unwillingness on the part of management to actually us or certainly in guiding us towards organisation manage working hours properly and to manage and recruitment because it tends to undermine the production properly. To try to give you an example standards which have been set. It is fair to say also of this, in the working time opt-out we have of the BPIF that there are a number of BPIF managed to negotiate a number of national members who are members of the organisation, but agreements, unfortunately not with the BPIF on the basis that they do not apply the national because of the dominance of small and medium agreement so they receive the commercial services companies, and the BPIF area has probably the from the BPIF, but negotiate agreements either highest level of overtime working. When we have separately with us or some of them are not unionised gone to individual plants to negotiate working time at all and of course we pick up a significant amount agreements, we have very often found a 48-hour, a of information from the Employers’ Federation, and 55-hour and in one case a 60-hour working week at a the conclusion we arrived at quite frankly is that very major publication company. We had diYculties there are very few non-union employers where with our own members because they had got used to proper monitoring, proper regulation and proper the culture of working 60 hours a week. We managed working conditions apply. It is usually when we get to persuade both our members and the company to into organisation and recruitment that we find introduce new working arrangements and new shift generally that the standards are lower than have systems which cut the working hours dramatically, been set in the national agreements in the printing first of all, to 48 and since that was negotiated a industries. couple of years ago we are well down below 48. The problem with the industry in the larger plants, in my Q424 Mr Clapham: And, as you were saying, the judgment, is really an unwillingness on the part of information from the non-unionised sector is companies to bring in new shift working arrangements and to control production in a more obviously anecdotal, but are you able to influence V the non-union sector, do you feel, by what you are e ective way than they do at the present point in doing in the union sector and, given that employers time. I believe that the Working Time Directive actually is a damn good incentive to push them into need to be competitive, that they do look to what is Y happening in the union sector? more e cient ways of working and, consequently, in Mr Dubbins: Yes, it is limited, what we can do. What the plants where we know it has gone in, it has we attempt to do every year on the conclusion of the tended to improve quality as well. national agreement—which is of course virtually automatically applied to BPIF member companies, Q426 Sir Robert Smith: In the larger plants where certainly those that work under the terms of the there is a management issue in your eyes, has that agreement—is that that is circulated to all of our meant that they have brought in extra workforce or branches and to our members, but we also circulate they are just using the same workforce more the basic terms of the new agreement to all of those eYciently? plants who are not in membership of the BPIF itself. Mr Dubbins: Mostly it is using the same workforce Some of them are unionised and we have recognition more eYciently. It has on occasion, depending on and in some of them we only have individual the shift coverage, meant some additional people, members, so the terms and conditions are pretty but, to give you a for instance, if you rearrange shift broadly known across the industry and I think it working to cover for six days and have four 12-hour would be true to say that the vast majority of the shifts and three days of 12 hours, you can actually industry does apply those terms, but there are some get six-day production cover and take account of significant gaps. changed publication times. If somebody is working two shifts or a three-shift system, you have not got Q425 Sir Robert Smith: Just moving on to the that extra day, you have not got that extra cover and working hours culture in the printing industry, it is the same with seven days, it is the same with would you say it was long working hours? standard shift arrangements and it is the same with 3055811004 Page Type [O] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Amicus, GPM Sector particular shifts arranged for weekend working Q429 Mr Berry: Where there is a serious problem of which we would encourage employers to do too, long hours, is it partly because of reluctance by avoid Saturday and Sunday working as that is a employers to provide the necessary investment to disaster from the productivity point of view. It is also improve productivity? Are they saying, “Look we disastrous from the health and safety point of view. could operate with shorter hours, but part of the Long hours tend to reduce productivity. problem is we have to invest and that costs money”, and so on; is that a constraint? Is the overriding wish Q427Sir Robert Smith: In the smaller companies to be able to appear to publishers and purchasers to then, the problem is that the basic remuneration is be flexible 24 hours a day? not really enough and, therefore, the incentive is to Mr Dubbins: I do not think, in our experience, try and get extra hours of work? investment is a major constraint. I think the general Mr Dubbins: Yes, I think certainly at this level investment levels in UK print pretty well compare amongst all of us, it is fair to say, there would be with most of Europe. I think it is under-utilisation of more understanding and more sympathy with equipment. We have certainly had an excess of capacity in the industry over the past few years, members in the smaller companies because the wage Y levels and the condition levels are generally lower which has made things a bit more di cult. It really than in the medium and large companies. is a lack of ability to be able to manage the use of that equipment. It is a very high tech industry, as I said a bit earlier. The cost of investment, and the lifespan Q428 Mr Berry: I must declare an interest. I am a of investment are issues. The cost is getting higher by member of Amicus and I am standing at the next the year significantly (because of the technology election. Could we stick to the long hours culture or which is increasingly being introduced) and the the long hours issue. From what you are saying, lifespan is getting shorter. You are being squeezed Tony, the larger companies have been persuaded to from both ends. I would not say it is a major move to more acceptable hours and it was simply by complaint. I am not saying it does not exist—it does, improving productivity and it was about getting I am sure—but I would not say that investment is at their act together. That raises the question of why the top of the list of problems. are they not doing it in the first place? You may well be better managed than they are and maybe that is the reason, but it is about productivity Q430 Mr Berry: Finally, where you and your improvements, is it not, essentially substituting the members have negotiated more reasonable hours longer hours? Why do they not do it without the what has happened to the pay of your members? trade union coming along to apply pressure? Mr Dubbins: Obviously it is part and parcel of the Mr Dubbins: Well, it is a very diYcult one to answer. arrangements we do. We have an arrangement, for There are varying responses to it when you talk to instance, if there is a treble shift arrangement there employers about it. Very often you will find that is a standard national premium of 33´%. If it is a six- day working four shift arrangement the standard some of the managements are very much coming out Y of family companies and have not necessarily got the premium is usually 40%. We have di culty and I real management skills that are required to manage would not want to mislead you about this. If you go what now is a very high-tech industry. We also know to a group of GPMU members and try to get them that in the kind of competitive situation we are in, to do six-day working, boy, you have got some the natural response of the employer to a customer, problems. They resist it. The ironic thing is we particularly if it is a large customer, is to say, “Open always manage at the end of the day to persuade them to give it a try, once they have had a trial of six- all hours. We will meet whatever production V demands you have got” in order to maintain that day working you cannot get them o of it. The opportunities it throws up: they can see the volume and to maintain that contract and they are Y afraid to say, “Well, we are bringing in new working improvements in e ciency, productivity, and the arrangements which you must now fit in with. We work/life balance changes and changes quite will try to respond to what you want, but you can’t dramatically. They really do have a lot more keep changing it every week”, and the nature of our available time to spend with their families. It is a industry is that a lot of publishers do tend to change proposition which is usually never responded to every week. I would not suggest that it is okay in the positively at the time when employers try to introduce it, but within a few months of being larger companies as I do not believe it is. There are V still a lot of larger companies where there are high introduced you cannot get them o this kind of shift. levels of overtime working, poor levels of productivity and in my judgment, work Q431 Richard Burden: Could we look at things from arrangements which could be considerably the other end briefly where employees themselves improved. We have a process on a joint basis with may come forward and ask for greater flexibility in the Employers’ Federation to try to improve working, whether it be work/life balance or productivity, to try to improve working whatever. Are those opportunities increasing, or are arrangements and we are more than happy to they decreasing and getting shunted into continue to do that. Where there is low productivity, arrangements with the employer? where there is bad management, we need to draw it Mr GriYths: You are right, there is now—with the to the attention of the employers and to our own publicity and some of the changes in legislation—a members and to try and get that changed where we desire by workers in the industry to look at can. alternative working patterns. We have not had an 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Amicus, GPM Sector awful lot of experience of that, in fairness. We have with agency and temporary workers at rates and very set arrangements for a lot of workers. It is also conditions which are well below the industry true to say, by and large, that has not been standards and the industry norms. That was pretty responded to favourably by employers, for the same unusual two or three years ago but now it is sorts of reasons we are talking about—the need for increasing greatly. The numbers involved are diVerent shift arrangements to spread the working tremendous and we have some of the largest week in order to make publication dates or just companies in the industry who clearly have policies general contract delivery times. There is not much to move towards a core workforce, the vast majority desire to see individual requests accommodated. We of them being skilled workers and to outsource to have had instances where we have had to raise it with agencies the unskilled areas. That has created a lot of the use of legislation particularly for women; but it insecurity and a lot of vulnerability. I think the other is very, very diYcult to persuade them for the need area where we see some further regulations being for individual requests. helpful in small companies is the removal of the 21 employee threshold for statutory underpinning of Q432 Richard Burden: When you do negotiate, say, recognition. We have had some diYculties with that. a change in shift pattern would it be a standard part I would not want to suggest that most of our of your objectives in those negotiations to build into recruitment resource is going to small companies. It that some recognition of exceptions being made to does not, because we can see if we get to the end of cope with family circumstances, say? the road in a small company you can spend a hell of Mr GriYths: The sorts of shift patterns Tony has a lot of time and resources recruiting and organising described are generally greeted with pleasure once only to find you cannot obtain recognition. people try them. Of course, it is a huge change for Generally, the burdens that business carries, in my people initially, particularly for those members who own judgment, are pretty wildly exaggerated. Keith, have family responsibilities, caring responsibilities, you actually have been involved directly, and it mainly women. There is often a total inability to might be better for you to supplement this because suddenly move from day working or double day you are involved in a survey at the moment. shifts stretching from perhaps six in the morning to Professor Ewing: We have been doing some nine or 10 at night to 12-hour days and nights. The interviews of small businesses in printing, textiles night working element is often a problem. In those and light engineering, and we have been speaking to particular instances we always make an arrangement employers about some of the issues which you have whereby individuals would be asked by the company raised today—one of which is the burden of but if anyone has particular reasons why they regulation—and asking expressly, “Do you feel, in a cannot, they should be accommodated. In those sense, that there is too much red tape of over- instances obviously accommodations are made; but regulation” of the sector in question. I have got some requests, as in the earlier question, to change as a of the transcripts with me so I can read to you some result of a change in family circumstances are not of the responses we have been getting. With one generally accepted by the employer. employer in the Midlands to whom I spoke the interview went something like this: “So you’re not Q433 Judy Mallaber: Obviously you will be seeking bothered by red tape, like a lot of employers protection for your members but, given the areas complain about? Respondent: No. Interviewer: No? you represent where there are such a substantial Respondent: No. I ring up one of my contacts and number of small firms, do you have any sympathy at say, ‘What are you doing about this’. Interviewer: all with the argument that employment regulation You don’t think that there’s too much regulation can be overly burdensome? then? Respondent: It depends on how you look at it. V Mr Dubbins: Not really, I would have to say. Our I mean, I can’t a ord to have anyone here looking at experience is the reverse—it is the lack of joint red tape all the while. I certainly can’t do it myself, so regulation which I think leads to diYculties and we streamline it”. Then I have another from a micro problems in the industry, certainly as far as wages company where some people would think the shoe and conditions are concerned. There are three key pinches tightest. The same question to the company crucial areas where I think we need more regulation, in question: “Do you feel there’s too much red tape if I can answer the question that way: one is the end as an employer in terms of what you have to do? of the opt-out. I see that not only from the heath and Respondent: What, just generally? Interviewer: Yes. safety point of view, which is obviously a major Respondent: Yes, I think there is. She [his wife] factor, but quite frankly if we are ever going to really handles all that side of things. Just general red tape, address the productivity question in the UK and tax, VAT, that’s what you’re talking about, isn’t it? bring ourselves up around the European average in Interviewer: What about employment regulation, terms of productivity, the pressure on working hours you don’t feel there’s too much protection for the is a major contributory factor. I am quite sure of people you employ, or too many rules? Respondent: that, so I think it is useful in two ways. The second No, nothing that gets in the way of us running our is agency and temporary workers. We are more and business. Interviewer: So you don’t feel that the more concerned (and this has been around for a protection for your staV frustrates your ability to while) but in the last couple of years we have seen run the business in the way you want? Respondent: more and more large companies, some of them in No, no, no, I wouldn’t”. Then we go oV and discuss major groups of companies, who are allowing their something else. 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18 January 2005 Amicus, GPM Sector regulation which they have to deal with is something say that in some cases the information does take time they can deal with and is not a burden they feel too to filter through. I do not think you can generalise heavily. With another employer I spoke to I said to about the issue. Some people are pretty well clued- him, “If the general regulations in employment up on what is going on and are well-informed and conditions were to be relaxed how would they well resourced as it were; but in other cases it does change the way in which you run your business?” He take time to get through. said that it would not, in the sense that he could not think of ways in which things would be done any Q435 Sir Robert Smith: What stage is this research diVerently. There are a group of employers who feel at in terms of it being published? quite relaxed about the specific issue; but there are a Professor Ewing: That is a very good question, as number of employers who do complain about red they say. This is a very helpful occasion because it tape, but when pressed specifically about which compelled me to go and read very carefully some of issues trouble them, when the questioning is the transcripts and to be able to bring them today. persistent, they are unable to identify any specific We are probably about two-thirds of the way issue which is a real and consistent concern. There through. We have some interviews we still need to are other employers who say, “Yes, red tape is an do, particularly in one of the sectors. issue, or regulation is an issue”, but when you raise the issue of red tape, the issue they are concerned Q436 Judy Mallaber: Is it possible for us to have about is how to dispose of chemicals and it is waste access to that information? management which tends to be the problem. This is Professor Ewing: Yes, when it is completed. I will the kind of evidence which is coming forward from have an advance copy of the information. It is very this study. That is not to say there are some diYcult to recruit small employers, or indeed any employers who do feel some things in particular are employers. It is not an easy process. We do have to a bit unfair. There was one employer who was give various undertakings in terms of anonymity and troubled by paternity rights. It was something he did so on. I think the best thing from our point of view not have to deal with in the past. People of his is that we get this information into a workable form generation in that situation were never entitled to and would be looking to produce an interim report this, and this particular employer was clearly quite soon. When that is available I would be very anxious about that. Again, a number of other happy that it should be passed to the Chairman for employers (not those I have referred to) were distribution to the Committee. I would not like to be perfectly relaxed about paternity and accepted this pinned down to a date, but as soon as possible. was a good thing and were perfectly happy to support those employees who felt the need to take leave. So far as printing is concerned, the response Q437Chairman: That would be helpful. I have to say we have been getting is that over-regulation is not to you, Professor Ewing, the evidence you are something that employers, on the whole, are alluding to (if I can put it that way) seems to be in complaining about. contradistinction to evidence we have already had from bodies like the FSB, the CBI or the British Chamber of Commerce, whom I think it is Q434 Judy Mallaber: Do you have any information reasonable to say anticipate the apocalypse from that research you have done, first of all, on the relatively soon. I notice your questions were fairly degree to which employers just do not know about gentle and non-specific in character. Do you think if the things they are meant to be doing, or how you had pushed some of the employers on issues like knowledgeable they are; and, secondly, if something maternity, as distinct from paternity, that the issue does then suddenly hit them which they have not is being extended with opportunities for additional realised (such as paternity rights, which you have leave? The impression we got was there are certain mentioned) how easy it is for them to access employers where this was really rather diYcult. information without it taking them an inordinate Professor Ewing: One employer did express concern amount of time and diYculty? about maternity and having to leave the job open for Professor Ewing: What is interesting is the very 12 months. The point of an open question is to invite complex networks by which information is shared, response, is it not, to pour out your concerns? It is or by which information is obtained by employers. not really to invent responses, or create responses for It would be the case, for example, that many of the the interviewee. It is to give an opportunity for the employers we have spoken to are members of the interviewee to identify the problems which are of BPIF, even very small employers. They would be concern to him or her, rather than put words into getting the information there and would be very people’s mouths. This is what we have done as we happy with that. It is also the case that some of these have provided this opportunity. In the questioning I employers employ a considerable number of people think we have been quite persistent. We have not who, it should be said, retain their membership of a simply raised it and moved on but we have queried union. You have some employers still members of it. “Are you sure?” This is part of a general Amicus, as it now is, and they are getting discussion over a wide range of other employment information from the union and getting support issues as well. We have not just been looking at the from the union in terms of some of the issues that burden of red tape; we have been looking at the role arise in the workplace. For other employers, they which the trade union may play in dealing with will subscribe to various advice services which are problems which may exist in the workplace. We have available commercially. I think it would be true to been looking at why small businesses feel the need to 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Amicus, GPM Sector comply with the National Pay Agreement, for On the one hand, you have the employers’ lobby example. We have been looking at a wide range of which will take one view, and you have the trade issues, of which this is one. It would not be fair to union, TUC and others who will take another view, lead people into directions of the kind you might in the sense that they will be coming to this with otherwise imply. diVerently informed positions. Chairman: We certainly get the impression that questionnaires are issued on the basis of, “Tell us five Q440 Miss Kirkbride: I was interested in your last things you hate about employment regulation”, and response because, listening to what you told the then give them seven options! Committee a minute ago, just because an employer does not rant and rave about one specific piece of Q438 Judy Mallaber: Just following on from the regulation does not seem to me to mean he is not Chairman’s question, how far might those responses upset about the aggregate burden of it? Very often reflect the general make-up of particular industries people think it is unreasonable to criticise someone you are working in with, for example, maternity they know and like for wanting to take maternity rights where women are employed a lot and whether leave but, nevertheless, it can be very aggravating as it does or does not create in practice more or less an aggregate. I would take that from some of your diYculty within a particular industry? If you are responses. I was interested to see how you looking at the question of maternity rights, interpreted it. My question is whether or not there obviously the diYculty that will create for a firm were any individual regulations that you think could depends on whether they have women employed in be dismantled or got rid of? particular jobs which are diYcult to replace. Have Mr GriYths: I think that question was in part you tried to identify the make-up within the covered by an earlier response where we see some of industry? the regulations that should be removed. I think Tony Professor Ewing: No, I have to say in fairness that gave detail there, in particular the opt-out from the the issue of maternity rights, particularly, has not Working Time Directive. really arisen, except in two cases: one was the chap who was quite hostile to all forms of regulation Q441 Miss Kirkbride: To remove the opt-out? anyway and this was one issue he identified; and in Mr GriYths: To remove the opt-out, yes. the other situation where it arose there was quite a degree of sympathy for the position of the employee Q442 Miss Kirkbride: It would not have the eVect of and her husband—both of whom are employed in removing the regulation? the same company. You cannot generalise about Mr GriYths: There is a certain amount of time and employer attitudes. One thing about this study is the resources involved with employer-led issues to see fact that we are actually speaking to employers— about that. He has to actually get each individual to employers who actually have to deal with the sign away their rights. In our experience that means situation as it is. Hearing from them what they really spending some time explaining why it is better for feel is actually quite interesting. them to be able to work unlimited hours and not be constrained by the Working Time Directive. In a Q439 Mr Berry: It seems to me it is pretty obvious number of instances, particularly when the why organisations like the FSB do not like regulations first came into this country, we had regulations. They know the more regulations there instances of employers saying, “Look, you will not are, the more likely their members are to get on the be able to do overtime any more unless you sign this phone and ask for advice. The rational response is to opt-out”. We have also got experiences of contracts V be anti-regulation for that reason alone. Professor of employments being o ered to people when they Ewing, presumably your research cannot be the first join a company with a requirement or an option to research in this area about how firms react to sign away their rights under the Working Time regulation. Apart from your study, what is your Directive. interpretation of the evidence? Is it, as I thought you said earlier, that the argument “regulation is a Q443 Miss Kirkbride: The Working Time Directive problem” is greatly exaggerated when you actually is a deregulatory measure? ask employers about how they operate? Would that Mr GriYths: You can make your own judgment be the consensus, or are you out on a limb here? there. What I am suggesting is that it is a regulation Professor Ewing: It is hard to say. It is like with all on business. scientific questions in the sense that there is probably no consensus. There is a range of positions in the Q444 Miss Kirkbride: No, it is your opinion we sense that there would be people who would take a want. view that regulation is a problem; and there would Mr GriYths: In my opinion it is a regulation on be people who would take a view on the other side business which should be removed for a number of that lack of regulation is a problem, because reasons. As you will be aware obviously the regulation creates better productivity, improves Working Time Directive gives an ability to average competitiveness and so on. The best answer I could the 48 hours over a period—the default period being give would be that there is no consensus position on 17 weeks but up to a year. In every single instance, this. There is a range of responses, and this range of and I have negotiated a number, when we have had responses is reflected in the diVerent evidence you discussions with employees their first reaction is, receive from diVerent witnesses to this Committee. “We want the 12 months. We want maximum 3055811004 Page Type [O] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Amicus, GPM Sector benefit”. In all cases I have said, “If you need that, evidence earlier that you have been comparatively you can have it, but I would like you to actually successful in securing recognition with employers examine and consider whether the 17-week period who have derecognised your members for (which is obviously more limiting) is capable of organisational purposes. It has to be said we have being worked”. In all bar two cases they have not had a lot of evidence from employers’ accepted the 17-week period. Where they did not organisations that the opportunities for securing want it, they have had a bit longer and had the six recognition have been a burden to them. On the months rather than the 12 months. I am suggesting other hand, in your experience, and some of your that the rush to sign away those rights to require evidence would tend to suggest this, have you found people to give an acceptance of the opt-out is that there are ways in which so many employers can unnecessary. side-step the thrust of the legislation, if not the actual letter of it? I wonder if you can let us hear something Q445 Miss Kirkbride: Therefore, there is always a about this at this stage? case for more regulation and that would be it? Mr Dubbins: Chairman, I think it would be best if I Mr GriYths: That is one way it is happening. Could ask Tony to fill you in on the detail of the problems I perhaps broaden my answer, if I may, because it we have found with individual attempts at obtaining links in with a number of the other questions, but recognition. Generally, one of the things we have specifically on that: I have not done surveys, as been pressing very strongly for is to extend the legal Professor Ewing is suggesting, but I have spent a right to recognition to include companies with lifetime in the private sector both as an employee under-21 employees. In an industry such as ours, and now as an oYcial. We work with a great many with so many small and medium companies, it does companies that are more enlightened, certainly that exclude and discriminate quite strongly against are very comfortable with trade union membership people in small companies if they cannot have the and are happy with the relationship they have with same basic right to recognition and representation. us. Almost without exception, I have never known We found that mitigates disproportionately against companies that immediately embrace what we are woman, black and ethnic minorities because, again, describing here as ‘regulations’. The example I the composition of small companies is skewed would like to cite—and this applies in the main to generally in the fact that more people from those larger companies—is talking about information and backgrounds are employed in those companies, consultation which is just coming in, if you talk generally there is a discriminatory element built into about the EWC regulations and generally the it. We have been pressing very strongly for the arrangements for partnerships, the reaction extension of the right to recognition to lower the amongst most enlightened companies at first is, “We threshold of 21. If I could say so, no-one is under any don’t need this. This is going to be an extra cost to doubt, certainly we are not and have not been us. This is going to be an extra burden to us”. Yet in suggesting as a parallel to that, that in those small all of those cases, once they get into it, and once they start engaging and once they start informing and companies there should be the same kind of empowering their workforce, they see benefits; they recognition procedure which we have to go through see benefits to the bottom line in terms of in larger companies. We believe in a very simplified productivity. My view, which is a view based on my form, we should apply a criterion saying there has to experience and you can take it or not, is that there is be proof that more than 50% of the employees are in always reaction from employers against any outside union membership and if that needs ACAS to interference of whatever type—taxes or the confirm that, that is fine, but without all of the ballot individual regulations we have been talking about— paraphernalia and this so-called bureaucracy that is but that does not necessarily mean in the long-run associated with it. That should be very, very easy to they are bad for the business. We work in the private do in small companies. Tony has been the hands-on sector so the bottom line for us is that unless the person as far as the diYculties in the whole company makes a profit our members are not recognition field are concerned. employed. Mr Burke: As we indicated in our evidence earlier, we have had some success in the printing industry Q446 Chairman: Just for the record, EWC is the and, as Tony said, in the newspaper industry, in European Works Council. There is always a danger winning recognition, not only in companies where with our witnesses that they lapse into jargon! One we were derecognised but in companies where there of the aspects of the flexible labour market as it was had never been a union. In some respects that is developed by Mrs Thatcher and her colleagues in the because there was a considerable interest among 1980s, and I think you referred to it earlier on, was employees to join a union and they approached us. the issue of the capacity that was aVorded to In many respects we have been successful. We have employers by one means or another to derecognise had voluntary arrangements with various employers unions. Without wishing to get into the merits of the who have looked at the legislation and felt it was argument one way or the other at this point, because better to work with the union. Generally, we utilise this is an all-Party, non-Party, investigation in some the services of ACAS to provide assistance and ways, there was in 1997 a signal given by the guidance in the main to help the company through. Government that there would be a change of step on Certainly over the past two to three years, what we this. You can argue that the steps have not been big have been experiencing from certain companies has enough, or whatever. You have indicated in your been what we describe as heavy duty American-style 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Amicus, GPM Sector anti-union tactics, union and union avoidance. We talk to them about testing the workforce on union have a number of good examples and if you would recognition. They had T-shirts and all the usual like to hear them I can give them to you. American style paraphernalia about why the workforce should not vote for a union. This included the door of the managing director’s or the plant Q447Chairman: I think we have them in the written director’s oYce always being open and people could evidence. solve problems which they had by setting up a staV Mr Burke: As Tony said earlier on, in general terms association which, to all intents and purposes, was in the newspaper industry, the biggest culprit is the worked around the basis that people would be Daily Mail Group, Associated Newspapers, where selected for it who were not going to give them any we have tried to achieve recognition at a number of diYculties. Again, the dismissal of our union their plants in Stoke, Gloucester, Exeter, Swansea representatives was involved. We had union and Bristol. The workforce has wanted to join the representatives who had been at the company for not union and they have made approaches to us, they a long period of time because of the high turnover, have issues at work which have been very important but were actively encouraging their work colleagues to them and they raised them with us and we have to join the GPMU and they were faced then with given them advice. We had begun to build up a dismissal on charges which did not hold up quite membership based around those colleagues who frankly. It is interesting to note that in the Daily want to join a union and want to be represented by Mail and Amazon cases, we took it to tribunal and a union. The first major confrontation we had with won, all of the companies settled outside the the Daily Mail Group, in the first instance, was at tribunal. At the end of the day it shows you some of Stoke Sentinel where we had over 50% in one of the the ideas the employers had been using, if they had departments. We were forced to go down the CAC come before the tribunal, would have been totally route—the Central Arbitration Council route— exposed for what they were. which is the legal route to achieve recognition, as they would not go down the voluntary route. Of course what the company did in advance was to take Q448 Chairman: On the other hand, even if you had a number of steps, which included the dismissal of won formally in the tribunal, there would be no our union representative, our key representative in entitlement to reinstate them? that particular department who was supporting the Mr Burke: That is right, absolutely. union’s campaign to recruit. I have to say, what happened to the previous GPMU has happened to Q449 Chairman: In a sense it is really a kind of the NUJ and I am sure they would give you very moral/financial victory? similar evidence. At Stoke Sentinel, we were faced Mr Burke: Yes, Chairman, it is. If it is a large with the dismissal of our union representative. The company the total maximum that can be outlaid is a ballot was ordered by the Central Arbitration very, very cheap price to pay and more than they are Committee. Individuals were brought in before prepared to pay. supervisors and managers, they were pressurised into saying which way they were going to vote, they Q450 Richard Burden: In the evidence you put were pressurised into dropping out of the then forward one of areas where you say certain GPMU and literature was circulated which not only employers do manage to get around obligations and put the company’s arguments forward but made recognition procedures and so on is by playing some quite disgraceful comments about our union around with what is defined as the appropriate and what we were about. On each and every bargaining unit for employees. From the written occasion in the Mail Group, where we have been evidence you have put in I understand the objective involved either in working towards a ballot or is there. How would you like to see legislation working towards gaining recognition, we faced the change so you can have a diVerent definition for sort of tactics which I have described: dismissal of bargaining units? union representatives; pressure to drop out of the Mr Burke: One of the diYculties is that it is the union and pressure to indicate to supervisors and union’s duty to put forward the bargaining unit. managers which way people were going to vote in Usually we work around the basis that people advance of the meeting and in advance of the ballot. renewing membership and those people who fit in Also, we have got other experiences, which we have with the structure of the company. In a number of described, and some of them tend to come to the instances what we have found is that the company surface because of the names of the businesses. As will challenge the bargaining unit by adding in you know Amazon.co.uk at Milton Keynes is a large supervisory staV, temporary and agency workers, book distributor on the Internet. We recruited the boss’s wife and anybody they can put in to make around 50% of the permanent workforce at the it much more diYcult for us. What we would like to Milton Keynes facility, we were doing quite well. We see is a very straightforward situation where we can tried to meet the management and suggested they approach the company, using ACAS if necessary, to should sit down with us. They invited our full-time define the bargaining unit a lot tighter and not be oYcials to the site to get into discussions with them dragged through the CAC where we can get into a and then the company brought in their own very complex argument as to who should be in and American advisers to run a campaign against who should not be in. We would prefer a much GPMU. They ran their own ballot in advance of us smoother transition where we can provide the even getting to the basis where we could sit down and information, the employer provides the information 3055811004 Page Type [O] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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18 January 2005 Amicus, GPM Sector and at the end of the day, ACAS can decide very is not finished yet, but their Glasgow plant. It was a quickly, “They should be in the bargaining unit” and remarkable eVort because the two guys I met—you both sides can agree to it rather than go before the may not believe it—were telling me about the last Central Arbitration Committee and have to have, as union oYcial they had run into was a guy called we have had, sometimes two, possibly three Briginshaw and that was in the 1930s, so I was the hearings, just on that while there is an argument at next union oYcial they met. With all the concerns the CAC. that were on both sides, we concluded an agreement and it has gone very, very well. I think if you ask DC Thomsons now: “Has the experience of dealing with Q451 Judy Mallaber: If all the recommendations the union been a bit better than you would have which you put forward here were implemented, you anticipated?”, they would probably say: “Yes, of would still have the problem of getting recognition course it has its ups and downs and always does, but and representation rights, the employer not being generally it works well”. I am one of those people interested in acting in good faith. How meaningful who believes that once the parameters are set, people does that make getting representation, if you are more frightened of possible implications but manage to get it through because you have got these reassured by the reality of their experience. new provisions but it was within a company that would naturally have used union techniques? What do you think would be the next stage after that once Q452 Chairman: One of the arguments which has you have recognition and representation rights advanced in favour of the “flexible labour market” V formally? is that it a ords employers opportunities to come in Mr Burke: What we are proposing would assist and to established businesses easily. I realise a lot of your make the situation fairer. Also, I think it would help members are employed by what might be called make sure there was this level playing field with an “indigenous companies” and, on a number of employer. It would be very nice to have a system occasions this morning, Mr Burke has referred to where we turned up and the employer granted union American style tactics or American organisations recognition because we asked for it. The reality is doing this. With the exception of Amazon—one can employers are always going to put forward their understand why they would want to come to Britain counter proposals and their view about how to distribute books because of the English language recognition would work and the sort of agreement market—are there instances of inward investors into that could be reached. What we are saying is, the UK—in paper, packaging or printing across the certainly it would assist us in the long run in being spectrum of your membership—deciding to leave able to achieve recognition because at the moment because of the pressure to unionise? Are there people what we have got is the legislation and whilst it has who are involved in the union, if I can put it that been successful in some respects where companies way, and are they UK employers or inward investors are determined to keep a union out, irrespective of who resent this tradition? Can you generalise it or the law, they will undertake all of the sorts of steps give me numbers? which I described earlier to try and break open, as we Mr Burke: They are mostly UK employers. There are occasions when we have got some overseas call it, our union organising campaign. These V proposals would help but at the end of the day if an companies coming in or they have a di erent base. employer is absolutely determined, as we have seen, Sometimes they are a bit reticent but we have to bring in American style tactics, which we are now reached agreements on recognition with them. At increasingly seeing in some companies, then it is the moment it tends to be those companies, such as very, very diYcult for us but it would curb some of the ones I described, who are determined to try and the things the employers are doing and, certainly, keep us out by using these tactics. in the long-term it could assist us in gaining recognition. Q453 Chairman: These employers who derecognise, Mr Dubbins: We have approached it from the point notwithstanding the Associated Press issue, the of view that the main priority must be to protect the other ones, where would they come into the frame? individual’s right to have a trade union and Would these other ones have been firms that recognise that the trade union must be able to derecognise when they have the chance under what bargain on the individual’s behalf. The activities of might be called Thatcher-led employment the employers, which Tony has been describing, legislation? infringes the spirit and intention of the legislation. Mr Dubbins: The only other major company of any From our own experience, I am quite convinced, real substance is News International. The plants at also, that once an employer has come to terms with Wapping have never been reorganised and, frankly, the fact that with all the reservations they may have, we would not attempt to at the present point in time. the vast majority of their employees want a union to News International is going to relocate outside of represent them, they will do that in good faith and the M25 anyway and, I think that would be the they will bargain in good faith. One of the most appropriate time to look at News International as a remarkable things we found was with DC Thomsons whole. I think it is fair to say that we have not got of Dundee, who did not derecognise the GPMU in too much experience of foreign companies coming in the 1980s, they derecognised us after the General with a view of de-recognition. Strike in 1926 and as a result of this introduction of the legislation, we managed to reorganise DC Q454 Chairman: I was thinking more about the Thomsons, not completely at the Dundee plant, that paper industry where you have large investment? 3055811004 Page Type [E] 13-05-05 22:43:26 Pag Table: COENEW PPSysB Unit: PAG4

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Mr Burke: No. The paper industry is an entirely Mr Burke: There are a number of American diVerent field. businesses and legal companies who are looking Mr GriYths: In my experience—the view is around and providing this sort of advice to obviously mixed—there are fewer companies which companies. One of whom is called the Burke Group, derecognised the union and are now resisting our unfortunately, but they appear to be a major player entry back in. It is companies where, as a result of a in this arrangement in the USA. change in the industrial climate, members are saying: “Yes, we want to join the union” and we are trying Q456 Chairman: We are not always responsible for our relatives! to organise companies where the union has not been Mr Burke: Not at all. In terms of our regulations, in established before. Traditionally they are non-union our written evidence we make eight specific companies. They may be a new company setting up recommendations about changes to the procedures or an expansion of a group which has brought in and that would be lifting the burdens on companies, people from the locality and there has not been as we see it. Notwithstanding the response given by recognition because there has not been a company the Deputy General Secretary, once we establish there before. It is the attitude of companies. In some recognition it usually flows and the fear is more in cases—I cite groups—we have groups where we the perception than in reality. The direct answer to have really good relationships, where we have many, the question: “If you had a company that was many plants in union membership and where a new determined to keep you out, what happens then?”, plant was set up, and there would be the initial we make the point of recommendation that once resistance until we go in and speak to people and recognition is granted they should be seen to be then we have to go through the procedures. It is not negotiating or joining the collective bargaining so much de-recognition, as very often it is in the new measures in good faith, which is a phrase used in companies where we are gaining membership where other legislation. I do not believe it should there are diYculties. be permissible for a company then to seek Mr Ewing: When the legislation was first introduced derecognition after the requisite period of time there were organisations in this country which took unless they have demonstrated that they have an initiative to invite American consultants over engaged in good faith. If the union was able to prove here with a view to getting advice about how to that they have not, then I think the procedures for derecognition should apply. manage trade union relations under this legislation. I think in your introductory remarks to this line of Q457Chairman: To what extent are you satisfied or questioning you said something about not meeting relieved with the proposals in the current employers who have been able to identify any issues employment legislation going through the House? relating to union-busting. If there is a line of inquiry Mr Ewing: On recognition? which you might hope to pursue it might be worth going beyond the employer to the people who are Q458 Chairman: Yes. giving advice and speak to them getting some sense Mr Ewing: I can express some concerns. It is now of what they do, why they do it and, generally, to get enacted as Employment Relations Act 2004, which I some measure of this conduct. I am sure the am sure everybody is intimately familiar with. There information could be readily available about the are provisions which have been introduced dealing type of organisations which were engaged in this with unfair practices which are designed to deal with activity over the last two for three years. both employer and trade union misconduct during the recognition campaign. The problem, as far as we are concerned, is that the legislation dealing with unfair practices applies only during a ballot period, Q455 Chairman: Are we not saying that when the whereas a lot of the misconduct may take place at a Labour Government introduced the right to be a much earlier stage while the union is trying to trade union member and, as it were, firmed up the establish itself, organise, recruit and build up some facilitation of union recognition being achieved, this kind of structure. It is at the time when the union is was a kind of trigger mechanism for either beginning to flower that it is most vulnerable and it entrepreneurs in America to say: “We can frustrate is at that time that it needs better protection than is that” or, alternatively, for employers in the UK to provided currently. In a sense, our view is that it say: “We do not want this, how do we frustrate it”? would be helpful if legislation were to be brought Mr Ewing: There was an article in The Observer back to an earlier stage in the campaign. Chairman: On that point we will finish. Thank you newspaper around the time the legislation was very much for your evidence this morning. If there introduced. It drew attention to the fact that there is anything we need to follow up on, any names of was a conference being held in London which people organisations, we would be grateful and it would be had been invited to from the States. It was about helpful if you could provide that within a reasonable how you manage to stay union free in a legal timescale. You may appreciate that we are under a environment where there is support and where a little bit of pressure to get our report out before a union is wanted. The best line of inquiry would be to General Election. In that sense, we have a deadline speak to the people who are engaged in that kind of of probably towards the middle of next month, it activity rather than directly to the employers may be a short time but do what you can. Thank themselves. you. 305581PAG5 Page Type [SO] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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Tuesday 18 January 2005

Members present:

Mr Roger Berry

Richard Burden Judy Mallaber Mr Lindsay Hoyle Sir Robert Smith

In the absence of the Chairman, Mr Berry was called to the Chair

Witnesses: Mr Nick Isles, Associate Director and Ms Alexandra Jones, Senior Researcher, The Work Foundation, examined.

Q459 Mr Berry: Welcome. Would you like to employee which is not necessarily the right thing. In introduce yourselves for the record please? debates around labour market flexibility, that tends Mr Isles: I am Nick Isles, Associate Director at the to focus more on the hire and fire side of things and Work Foundation. that tends to be more about the employer, flexibility Ms Jones: Alexandra Jones, Senior Researcher for for employers. That is a key question which is not the Work Foundation. always addressed as well.

Q460 Mr Berry: Could I kick oV by asking what you Q462 Mr Berry: Does that not also raise the issue understand by “flexible working”? The word about the extent to which government intervention “flexibility” in relation to the labour market has is enhancing flexibility as opposed to impeding it in been thrown around like confetti for quite a few certain circumstances? Very often, in popular years now. Could you just summarise how you view discussion, in some of the newspapers at least, you that concept? What is it really all about, what are have flexibility on the one hand, intervention on the the issues? other and this intervention is preventing flexibility. Mr Isles: The first thing to say is that it is actually Now the examples you have given include examples more complex than people often assume. where that is not the case. Ms Jones: Absolutely. There is a myth that Q461 Mr Berry: Yes, I was suggesting that. intervention impedes flexibility and actually what we Mr Isles: I think it was the Treasury, when they were are arguing, in terms of flexibility, is that it is all trying to describe flexibility for the euro test, which about employers competing on the same grounds, came up with five broad areas of flexibility which because you do need employers to compete in the interact in the labour market. They are briefly: wage same way—that is what regulation is about—but, a flexibility—and there are various types of wage degree of flexibility within that. So, for example, flexibility as well to make things even more employment flexibility and the legislation which has complicated—geographic flexibility, labour market oVered the right to request flexible working time, has mobility, employment flexibility, functional or task been seen by some people as an impediment to them flexibility and nominal flexibility. Where we see doing their business in the way they have always confusion is that around employment flexibility— done; others would argue that actually the Working which is basically about how individuals improve Time Directive suggests that people may be able to the quality of their working life and become more reorganise the way they work to become more productive—there is one debate which is happening productive in the hours that they do. over here on one track and then there is the debate Mr Isles: If you look at OECD data which looked at around nominal flexibility, the ability to hire and the level of employee protection legislation, there did fire, happening over here on another track. There is not seem to be any diVerence at what level that was confusion between those two areas of flexibility. The set and the behaviour and performance of the labour third area I would highlight is around task flexibility, market as a whole. There is not a straightforward which of course is critical when we start talking causation between high levels of nominal about the sorts of flexibilities and capabilities we flexibility—the ability to hire and fire—and a very need for a knowledge economy and knowledge well performing or high performance on your labour society. There are all sorts of question marks about market in terms of employment rates and the UK labour market in terms of its adaptive engagement elsewhere. If you look at the flexibility and its task flexibility. Scandinavian examples, they have higher levels of Ms Jones: One of the key areas where there is regulation and less flexibility than we have, yet their confusion as well is about whom the flexibility is for. employment rate is above ours. It can be for employers and then perhaps the nominal flexibility comes in more strongly; I do not Q463 Mr Berry: Do you think that the main think many employees would necessarily say that obstacles to some of the flexibilities are the they welcome the freedom to hire and fire. I think employers? You refer to employers and government. that whom the flexibility is for is a key thing and In terms of flexible working, do you see that the main certainly in working time debates, employment players here are the attitudes of employers, or the flexibility debates, there tends to be a focus on the attitudes of government? 3055811005 Page Type [E] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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Ms Jones: I think it has to be a combination. Ms Jones: It is not necessarily an area where Legislation sets a minimum standard for many legislation is the answer; often legislation is seen as employers. Again, with the right to request, many the answer. I think the point that we have made employers have brought their policies up to that around employers needing to be engaged in this does mark because of the legislation, whereas others were mean that there needs to be a real emphasis on well ahead and have remained well ahead. The making the case for flexibility. When you look at government certainly sets a minimum standard, but employment flexibility, working time flexibility, employer attitudes, employer culture, employers’ employers who are engaged in it are the ones who way of working is vital to achieve some of the actually buy why they should get engaged and flexibilities. Sometimes it is posed as a dichotomy, an certainly our research suggests that where it works either/or, and that just simply is not the case within most eVectively, it looks at the customers and the organisations. If you have, for example, a culture in markets, it looks at the organisation and the way it an organisation that says “We have a lovely flexible works and at the individuals; it really does take that working policy”, to use an example of an investment stakeholder approach you mentioned. Those bank we spoke to, they had wonderful paternity organisations are engaged and a role for government policies, absolutely fantastic, complied with the would be partly in making that more strategic case letter of the law and they said they were going to use and also talking about some of the practicalities. The them to weed out the losers. Now, certainly DTI has promoted best practice, but some of that government has a role to play in getting policies best practice tends to be somewhat vaguer than there, setting that minimum standard, but perhaps is useful for organisations. It tends to focus employers need to be engaged and need to see the on the fact that it is great without saying what is benefits of being engaged. It does need to be a kind diYcult, talking more perhaps around work of joint eVort. organisation and job design, which we would argue Mr Isles: Our research into performance issues—we are key. There are roles, we would welcome the ran a major project in which we described work and extension of the right to request to carers for enterprise, that is what we called it—looked at those example, which is already suggested, but there is a bits of an organisation’s performance which were lot more to be done just getting that conversation not just about input, the number of staV or the going. V qualification of those sta and the amount of Mr Isles: Going back to what I was saying about capital. What we found over those high performance employment flexibility, that is very much about the organisations—we developed an index, we surveyed level of skills and adaptability of the workforce as a over a thousand private sector companies across the whole. Our research shows that the UK has made UK—was that there was a 42% performance hike in great strides actually in increasing levels of our high performing group. They all, without attainment within the workforce as a whole. It is V exception, put a lot of e ort into what you might call now standing at around 63% of the whole working a social partnership approach, into deciding how population at level two or above, and the EU target, best to deal with work organisation and job design. as suggested by the Kok report, as part of the process Legislation per se, regulation, was not seen as a of reviewing the Lisbon strategy, was to get that up particular problem by those organisations. It was a to about 85%, which is where the best performing bit of a hygiene factor almost. It was something they European economies are at the moment. I think that had to account for and deal with and they did. Even is a critical element when we are talking about in smaller organisations, other research we have flexibility and then what that means for performance done has shown, surprisingly I think, that they enjoy productivity; that would be where we would focus quite marked degrees of flexibility in the way that eVort and resource by government, getting those jobs are designed and the work is organised. That is inputs right, the demand side, bringing employers what is critical in terms of what you might call into contact with supply side to improve the levels of employment flexibility and task flexibility, which are skills. The rest of it has to be down to employers to the key elements of flexibility to improve get work organisation and job design right. Where performance overall within the economy and, as a can government play a role? Clearly in exhortation, second order, is the sort of flexibilities that we in aspiration setting, in encouraging best practice describe as hire and fire. I would say they are less along the piece, but we have to move from where we important than those other two types of flexibility in the economy as a whole. have been, at this oft-cited low skills equilibrium leading to low productivity outcomes, to a much more high value adding economy. Michael Porter’s Q464 Mr Berry: Just to bring that all together, in report to the DTI, last year or the year before, made terms of the UK economy, which are the areas where that very point, that we have reached the end of the you think more flexibility would be desirable and road for being able to compete on cost alone. which are the areas where you think we have got Basically, with the way that demand has been too much? structured on a global scale, the emergence of China Mr Isles: I am not sure I can answer that to be and India and other countries as a place to go to do honest. your cheap manufacturing and then even your cheap services, we have to be focused on those inputs and Q465 Mr Berry: It does depend on what you mean creating those flexibilities around what happens by flexibility. We have been through that already. within the organisation. That is where government Your policy recommendations I suppose. has a very big leading role. I do think one of the 3055811005 Page Type [O] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 The Work Foundation things that we got wrong in the past, in this area, was organisations do not measure the impact of looking too much at the supply side to provide all the flexibility. In fact very few do and when you look at answers. It is about bringing employers, the demand the results of many surveys in organisations, there side, to step up to the plate, in a way, and accept that tends to be a focus on employment productivity, they have an active role. Looking across at which is time, and there tend to be surveys which say European examples of where this has worked well, morale went up or people seemed happier. Where apprenticeship schemes that really have the there have been some measurements, BT is a very involvement of employers, where they are putting good example of an organisation that has been their money where their mouth is, seem to have a actively trying to measure what the impact of some better return rate for increasing levels of vocational of its flexible working arrangements are and that skills and really achieving performance means homeworking, that means rearranging tasks, improvements. giving people more control over their time and organising their tasks, they found, for example, Q466 Mr Hoyle: What do you think the UK homeworkers are 31% more productive than oYce Government’s approach is to flexibility at work and based counterparts, people still in the oYce. Some do you think it is doing enough to promote more other work has been done in other organisations flexibility? around retention of women after maternity leave, Mr Isles: You could do more around getting the which suggests that having some flexibility in the message that creating more flexibilities around work way that work is organised has an impact on organisation, giving people what we have described productivity. The other interesting statistic, I will in The Work Foundation as more time sovereignty, not go into too many, is something we did in our is actually a good thing for their performance and workplace trend survey which said that flexible their outcomes, and, critically, spending money on working, however you define that, was in the top investment in their human capital. All these are good three things which business thought would have an messages and there is a little bit of fence-sitting impact on their productivity over the next year. That around how far to go on these sorts of questions. is a survey of 1,000 organisations in all sorts of The business lobby is very vociferous about talking sectors. So it is seen to have a link. The gap seems to of the damage that red tape can do to UK be in research that actively pins down exactly what performance, but in our view the red tape argument that is, with all the caveats that come with research is a slight red herring. It is much more about the saying what diVerences certain ways of doing inputs and being smart around how you adapt to business have anyway. regulation. Q470 Mr Hoyle: So you would actually say probably Q467Mr Hoyle: Just following on from that, in the the best market leader is BT? case of the EU regulations, do you feel that the Ms Jones: At measuring? Absolutely. They do seem Government is a gold-plater? to be doing some good things. There does seem to be Mr Isles: It is probably a well-founded charge. We more work on looking at what impact flexible do things very thoroughly. I think one of the benefits working has. There are many case studies out there, of our system and our excellent civil service is that anecdotes around the way that functional task they are very thorough when they put it in. We have flexibility has impacted on the way businesses have a very good record of transposition of EU directives run, so they have been able to save money because into law compared with other European countries I people have needed to do fewer hours. That goes shall not name. back to some of the conversations around the low road to productivity, UK businesses operating on a Q468 Mr Berry: If not gold, certainly silver. low skill model and just making people work longer Mr Isles: Certainly silver. One of the outcomes of hours when they need to produce more. There is this mid-term review of the Lisbon strategy, which some case-study evidences, there is evidence around, seems to be on the verge of being thoroughly but it seems to be a bit scattered and it could be endorsed by governments across Europe, is that pulled together more eVectively, certainly from what there will be more naming and shaming through the we have reviewed. open method of co-ordination of countries which do not transpose as they should do, so that we do create Q471 Judy Mallaber: You mentioned homeworkers. a level playing field and that allows UK businesses, Do you have any information on how many hours who feel that maybe we have been doing this homeworkers tend to do? Also, I think there you gold-plating and therefore disadvantaging them were mentioning it in the favourable light of people compared with some of their competitors in Europe. with good jobs who are doing homeworking and I It will deal with that particular issue. wondered how much information you had on those which are fairly well exploited at home and any Q469 Mr Hoyle: Can I just take you on a little information or thoughts that you had on their further? Do you have any figures on productivity employment status. Have you done any research in and flexible working? those areas and how that links into the flexibility Ms Jones: There are figures around on productivity argument? and flexible working. Establishing correlations, Ms Jones: We have done some research on cause and consequences is very diYcult in all of this homeworkers. It has tended to be looking at those and one of the challenges around this is that many with better jobs, because that it where the focus of 3055811005 Page Type [E] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 The Work Foundation the debates have tended to be. Certainly in response could argue the same around the homeworking to your question on hours, there is a mixed bag of debates. What you see around that are articles about evidence, that homeworkers, because they have people deciding to downsize and work at home in a access via mobiles, via laptops, seem to be doing lovely place in the country often. Now, that is a more work, which may explain some of the caricature, but a little more accurate than perhaps productivity boost; but they also seem more satisfied certainly we would like to see around these debates. with their jobs. If they feel more in control and they When you see that, it influences your view of what feel happier, then it is an argument perhaps for these debates are about, of who is involved, so homeworking. There are issues around, even with around security, you are absolutely right, there are those good jobs, whether people really do feel in wider economic issues but also debates around control, whether they feel actually they constantly security are a kind of myth which can be sustained need to be checking e-mails, phoning the oYce, without necessarily evidence to back it up. constantly proving that they are working. Certainly Mr Isles: We have done some research into so-called we found, talking to companies, that it does need to generation Y workers; these are people who were be done carefully. You need to be the right kind of born after 1981. They absolutely have the idea that the person to be working at home, to be able to cope there are no more jobs for life and this is creating with it. You need to have good communications set some problems for employers, because they have no up, you need to feel part of the team, so there are all loyalty to the employer. We came up with this term sorts of policies which need to wrap round it, also gold dusting for groups of young workers who were health and safety needs to be a consideration and literally acquiring brands on their CV. Then, as soon that is a legal requirement. There are many more as they felt they had done enough, they moved on. It issues around homeworking than are commonly is almost that the rhetoric has gone too far. If you discussed, even in those so-called good jobs. I think think about it logically, there is a sort of illogic about around the people who are working at home and companies saying “We can’t oVer you a job for life, who are exploited, I have not seen much research but we want to go on and on”. Especially with larger done on that but it is an issue when you consider that organisations, why would you do that? I think we people working at home, even in employment, may have maybe gone too far the other way and felt feel that they do not have the equipment, that they security is clearly a problem, an issue in the UK are working too long hours, that they are not being labour market; I do not know enough about the adequately rewarded, that they are not part of the French labour market and other labour markets to team, they are not getting the training. Taking all of know whether that is the case. These externalities that and putting it into the context of perhaps not which aVect an individual, proving that business is having clear employment rights and other issues, very much rooted within society and everything that that is a real issue but it is not something that we we do around that, are very important to those have done a great deal of work on. feelings of felt perception. Feeling secure and in control are the two key things for improving Q472 Sir Robert Smith: You mentioned earlier, performance and productivity. The Michael Marnot nominal flexibility and the sort of view that hire and research into Whitehall clearly shows that those fire might be a way some people feel would drive the people who have no control over their job, stuck in the middle doing routine tasks, actually have very economy down the American model. One of our V witnesses this morning was talking about how, poor health outcomes; it a ects their health in a very interestingly, someone working in the US style real way. So giving people some control and some compared with someone working in the French security is actually a smart thing for an employer style, where it is much more diYcult to hire and fire, to do. actually it is the US person who probably feels more secure in their job than the French person at the Q474 Sir Robert Smith: On the issue you raised of moment. I just wondered whether there was any the shortcomings exposed by long hours and actual research which you are aware of in that field overtime as a poor response to the need for of comparing what is the nominal situation and what productivity, can regulation on working time is the perception of the person actually working in prompt the reorganisation of work and increase in that situation. productivity, or is it more to do with trying to get Ms Jones: In the UK, there is research. People’s industry to recognise its problem and confront it? feelings of insecurity around their job are not Ms Jones: Regulation can have a role. It certainly matched by the figures on job tenure. Job tenure does not seem to have had a great deal of a role with over the last 10 years has gone up, which is entirely the working time directive. Some organisations have contrary to popular perceptions around insecurity. reorganised the way they work, whether it is a There is a perception gap around how people feel security firm reorganising from about 90 hours a about their jobs and security and actual job tenure. week down to about 70, which is a start, or whether, with some organisations, I believe a brewery Q473 Sir Robert Smith: It may be the wider company were among those, it is looking at the economic issues than the state of the company which hours their employees were working and thinking aVect security. about making sure they could work diVerently and Ms Jones: Yes; absolutely, but also the debates work fewer hours. It has prompted some around it. People talk so much about the fact that organisations to look again at how they are people are losing their jobs and it feels insecure. You organising their work, how they are designing their 3055811005 Page Type [O] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 The Work Foundation jobs and how people are working; but not that many Europe has in economy around what it has done on people, because of the opt-out. There is not much environmental regulation, I do not think anyone enforcement around the Working Time Directive, would have an argument about that. We would nor is it really widely understood among employees, identify five areas. What does regulation do? certainly as far as we understand it, so I think that Promote and underpin competitive product could have a role. If you are going to organise work markets, create a level playing field, it is there to within 48 hours then you would clearly need to start protect consumers and public, it is there to protect thinking around work organisation and job design. the environment, to protect employees and other It clearly raises a challenge for industries such as stakeholders and, also, it is the balance between construction where you win contracts based on this business doing business as it wants and being part of idea that you work very quickly and it is usually over the society in which it operates, which is a way of 48 hours in one week, perhaps not over the 17-week identifying where the public interest is. So smart period, but if it is an industry-wide assumption that regulation is actually a good thing, it can drive up that is how you will work, you do need to get standards, but on its own it is not suYcient to get the industry talking about what agreements will be put productivity and performance improvements that in place to make sure that everyone is operating and we want to see in the UK. competing on the same level. A study of an accountancy firm around these issues was very Q476 Judy Mallaber: You were talking about people interesting because it talked to clients and working very long hours and you mentioned high accountants and found that accountants felt the earners and the people who are obsessed by work. need to work incredibly long hours in order to Apart from high earners and the self-employed, in provide a customer service for their clients. Clients which areas or sector is the long-hours culture felt the need to stay quite late because they thought concentrated? they needed to make best use of the accountants and Mr Isles: On the whole, it is professional, associate make sure they were there to answer any queries. It professional people and people doing those sorts of was a fascinating reinforcing cycle. It does make a jobs. It is men with family responsibilities as well. point around having a wider debate, having a debate Interestingly, until recently at least, it was also within the industry about what good looks like, women working full-time who were seeing the whether this is in terms of construction or in terms biggest net increase in their average hours. In the PSI of professionalism in accountancy. LSE data, it had gone up from 40 to 43 hours a week Mr Isles: The research we did last July into work and for full-time working. I think it was mothers happiness, the link between people’s jobs and how actually, but we can send a note on that just satisfied they were, showed that on the whole, long clarifying it. That was certainly up to last year when hours follow pay. The more highly paid you became, the average hours did fall back a bit. No-one is quite the longer hours you tended to work. However, sure why that might have been the case: a there are two caveats to that. One, we identified combination of debate around work/life balance, about 400,000 people, extrapolating up economy- probably the Working Time Directive and the eVects wide, who were working 60 hours a week for less of full employment, a mixture of those three I would than £11,000 a year and that clearly is a wrong. We have said. also identified about two million people, again extrapolating up from our survey, whom we Q477 Judy Mallaber: Were those long hours described as “workophiles” and these people do not concentrated in particular sectors or industries? make a distinction between work and life. Work is Ms Jones: There is some concentration, certainly in their life, they really enjoy it. Now it might have a surveys we have done, around agriculture sectors, knock-on eVect for the people with whom they are where that varies seasonally, construction. There living, are friends of and all the rest of it, and we all were fewer long hours within the public sector, know these people, we probably work with them although an awful lot of people were putting in everyday. What does legislation do around that? It unpaid overtime within the public sector and is there to curb excesses, where there is clear certainly the public sector feels more strongly in exploitation, and set a tone around eYciency and surveys we have done about hours of work. eVectiveness, which is going back to the points we Financial services also seem to appear as a sector made earlier, but there are groups of people who will where there are particularly long hours, but we continue to work excessively long hours and we should be happy to send a note on some of the should probably not worry about them too much as research we have done. long as they are happy doing so and healthy. Q478 Judy Mallaber: I would also tend to associate Q475 Sir Robert Smith: Do you think there is a long hours with poor basic rates, people desperate to danger that actually, if you just rely on regulation get overtime. I would assume that is presumably and it becomes too over burdensome, you are borne out by the evidence. actually going to drive away the investment that Ms Jones: Two groups of people tend to be working would bring about the reorganisation that could long hours. One is for money and the other is produce the better working environment? because it is unpaid and those who tend to work Mr Isles: We just have to be clear about what because they need the money are often on poor basic regulation is for. Regulation has a very important rates of pay, often are the people who need it to get role to play. If we look at the comparative advantage necessities let alone basic luxuries for their families. 3055811005 Page Type [E] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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Certainly that seems to be a big group of people who should be much more able to take time out during a are working long hours. Then there is the group who career or work diVerently and be able to return so are doing unpaid overtime and they are usually the that you can progress as far as you are able and still more voluble group because they are doing these have access to opportunities. People are starting to hours and it is to do with workload and work feel that things should change. organisation. There is a substantial group which was identified in the TUC survey for example, of people who do work long hours because they need the Q481 Judy Mallaber: Are there any sectors where it money. has actually proved possible to do that, to make that kind of change in working patterns, either to go part time or to job share or whatever and not lose your Q479 Judy Mallaber: May I go to the other end, career profession, be able to move back?. Are there people who maybe are not doing as many hours as any positive examples of that? they would like to? When, in another select Ms Jones: The public sector is actually fairly good at committee I served on previously, we did a report on this; for example, job shares within the senior civil part-time workers, I recall there being evidence that service. There are not that many, but there are some in fact a fairly substantial number of those who and it seems to have worked eVectively. Another worked part-time did not want to work full-time example, in the private sector, is a job share store hours, but would like to have been able to do more manager role in Boots which has worked quite hours. Do you have any evidence of that and is that eVectively. The problem tends to be that the something which there is any evidence that examples are few and far between and many of the employers will respond to, if asked to rearrange challenges people cite on job sharing are around work patterns in that way? finding a partner; on part-time working, around Mr Isles: Certainly we do have some evidence that finding a role where the workload will suit or the we can send you from the survey I mentioned earlier workload can be reorganised to suit. Another last year about part-time workers who want to work example, unfortunately also from an investment longer hours. In that group we identified a group of bank, was where somebody was told they were too individuals who would like to work more if they senior to take paternity leave; so seniority issues. could. There is a large number of people who said Certainly we found barriers, but the public sector is they would like to work fewer hours and of course in many ways leading the way on this and there are the UK does have a larger number of part-time some good examples there. Understanding what workers than other European economies on the some of the barriers are goes back to these things we whole. I think that the Dutch have a higher have been going on about: work organisation and proportion than we do. job design. These are key skills which managers need Ms Jones: Forty per cent compared with 25% and which many managers just do not have. In a way roughly. that goes to the core of this debate around flexibility, whether it is functional, whether it is employment, if Q480 Judy Mallaber: How much evidence do you you are looking at the productivity side, and we have on what response there is from employers if would argue those are the key ones. Understanding they ask to change their working hours in either of how to reorganise work, how to workforce plan, those directions? how to job design are key and that may be one of the Ms Jones: We do not have a great deal of evidence key barriers to people who are working in a specifically on what happens if you try to increase particular way, either full time or part time, shifting your hours. When we ask people why they are into a diVerent way of working. working the hours they are—and we did a survey Mr Isles: Some of the retailers, I am thinking of recently on this issue—there tends to be an emphasis ASDA in particular, have been quite good in on “My employers would not want me to work oVering a range of flexible benefit, or flexible ways of diVerently” or “My workload will not allow me to working to suit diVerent life stages. I do not know work diVerently” for those working longer hours. whether there is any data on people shifting around There seem to be many people who feel that they between them. It is much more to the idea being that cannot ask their employer essentially to change if you have someone coming in at a particular life those hours. Certainly with the right to request stage, they can have an employment contract that flexible working, if you do move to a diVerent way suits that life stage, say term-time working or, for of working, it is a permanent change in terms and older workers, being able to take more time oV in the conditions and that may make it more diYcult for winter, that sort of thing. I have not seen data on somebody, once they have changed the way they are movement within an organisation like that. working, to move back to a diVerent way of Ms Jones: What is encouraging is that we run the working. Certainly the evidence around careers, employers’ work/life balance website and we have a when women may move to part-time working when steering group of employers and they have expressed they have young children—and it does still tend to a real interest in understanding how they can start be mainly women—the diYculty of actually getting providing ways for people to work diVerently, take back into, call it a career track, call it access to time out, work part time, then move back into the training and to pay rises and promotion, seems to be career track, or into working full time for the quite considerable. Once you move oV that full-time organisation. They are realising that with an ageing track it is quite diYcult to rejoin it. We did a survey workforce, with more and more women in the and found that two-thirds of people feel that you workforce—one in five workers will be mothers by 3055811005 Page Type [O] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 The Work Foundation

2010 for example and most of the workforce growth NHS. That is an example perhaps of where agency is going to be women—they are starting to realise work can distort the market for employment in that that you cannot write somebody oV because they particular area and actually drive up costs. Nurses perhaps do not work in a way that people have should be able to get higher wages within the NHS always worked. They are losing some of the people arguably rather than resorting to agency work. Not they need and certainly in retail, oVering flexible in terms of a sector, but just in terms of some of the ways of working is key to them. They have found recent developments in agency work or people that people like B&Q, who oVer good flexibility to working for themselves, one of the interesting older workers and all sorts of diVerent ones are things, in terms of growth in self-employment, seems finding there is a link between that and profit which to be that many people may have been given early always gets people’s attention. retirement or may have been made redundant slightly early and are not wanting to give up. Some Q482 Judy Mallaber: B&Q are very pleased to people are suggesting that some of the growth in self- publicise that as well and say how well they are employment is around people who have decided doing. Talking about work organisation leads on they want to work for themselves, you could define quite neatly to looking at agency work. We them as temporary or agency workers—temporary interviewed Manpower this morning and had an workers anyway—doing short-term contracts, going interesting set of views about the values of agency and deciding to help out with some things and working. Would you regard the high use of agency working for themselves rather than getting back into work in the UK as a sign of a flexible labour market the labour market. Now that might be because they or of poor work organisation and an inability to cannot get into the labour market, but for some, it invest in the workforce and to organise their work in seems to work rather well. In terms of your question a way that does not need agency working? on sectors, we could certainly see whether we could Mr Isles: I am not sure that I would agree with the find some more information for you. last point you made, that it is necessarily the labour market not working eVectively. I think it is an output Q484 Mr Berry: One of our witnesses made the point of our particular labour market cultures, because a that in his view labour market flexibility in the UK lot of people choose to work in temporary work and was superior to that in Germany and the evidence agency work. The surveys of satisfaction show quite was that we have much lower unemployment than high rates of job satisfaction for those people who there is in Germany. May I ask the hoary old are doing temporary and agency work where question? It is true that the UK’s employment compared, certainly with full-time workers and even performance has been far better than most of with part-time workers, who usually have higher Europe, certainly Germany in recent years. Is it all levels of job satisfaction being recorded. It may well about labour market flexibility? Is it all about the be part of the fact that we have a slightly easier, or macro-economic approach? Is it both of the above the second most flexible, labour market in terms of or, fourthly, none of those at all? nominal flexibility of developed economies, that one Mr Isles: I think a lot of the stories about the way we of the side problems of that is that we have a thriving have managed macro-economic demand and those temporary and agency work sector. It is not types of institutions, the independent Monetary necessarily a bad thing. Where it can become a bad Policy Committee and the Bank of England and the thing is where employers are using it as substitute for setting there compared with what has happened in posts which should probably be full-time or Europe. Certainly the German labour market does permanent posts, where it is ineYcient, either suVer from some rigidities which need a forensic because you need to build up skills and experience approach to loosening them up and a good dose of and knowledge and develop staV properly and what applied active labour market policies in particular you are really doing is having a series of temporary ways would probably help. If you look at want-work engagements which do not really add a huge amount rates across Europe and compare France, Germany of value. That is where one could arguably say and UK, and there are some very good numbers flexibility has a down side. I think I will leave it at from the TUC, they are pretty similar. Our that. unemployed moved onto incapacity benefit on the whole. According to the labour force survey there Q483 Judy Mallaber: Would you have any thoughts were 2.7 million people who would like a job if they about whether what you have just described applies thought they could get one, so I think we have to be to certain sectors but not others? Are some using quite careful about saying that we are doing agency workers in a positive way and others in a way fantastically well. What we have done well is that we which is really just hiding the way in which they have created lots of jobs and that goes back to the should be organising themselves? point I was making about the way we have managed Ms Jones: I am sure there are examples of sectors demand in the economy as a whole. I would put doing both of these things. It is not something I flexibilities lower down the order of priorities in would know in terms of sectors, but certainly where terms of why that story is so. you could perhaps see some disadvantages of relying too much on agency workers is in places like the Q485 Mr Berry: I cannot resist what I think is a NHS where many people may move into agency correction. I think the 2.7 million figure relates to work because they can get higher wages as agency those who claim incapacity benefit, which is far more nurses, which has an impact on the budget of the than those who actually receive it, which politicians 3055811005 Page Type [E] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 The Work Foundation on all sides appear to make no distinction between. assumptions made are absolutely ridiculous. I think The survey suggests about a million of those would they are still made by employers, but this is actually seek work. Is that correct? where regulation can have a role. The 2006 age Mr Isles: Yes; quite right. I stand corrected. discrimination legislation has got many people very Mr Berry: Excellent. I have never been able to do worried about their current practices and they are that before from this position. looking at their graduate recruitment programmes Judy Mallaber: I am very impressed that you correct right through to pensions and retirement. One of the the witness’s statistics. key challenges around that is thinking about Mr Berry: Good; you are meant to be. diVerent ways to use diVerent people at diVerent stages of their career. For example, if somebody is Q486 Judy Mallaber: While on that, if you had any aged 50 and is very able to continue working for information at all on any surveys which are being another 20 years and is one of the most senior people done about how employers have or have not been in the organisation, what about everybody else who able to change their work practices to assist people is trying to progress, who wants that role? Many with disabilities or incapacity to go back into work companies may actually encourage people to move on flexible working patterns, that would be helpful. on because of that perhaps, because they have not I think we are all looking for ways of doing that. I do really thought about diVerent ways of using people’s not know if you have done any studies on it at all. skills. Again, that goes back to functional flexibility, Ms Jones: We have done an evaluation of the Marks task flexibility, thinking about diVerent ways of and Spencer programme which is not quite the same using people. For example, they could lead projects, as that. It was a programme which provided work they could be mentors, there are all sorts of ways. experience for a whole range of groups of people Certainly I would say that the employers we talked including homeless people and people with to are a mixed bag in terms of when people recognise disabilities, so we have done some work on some of it is an issue in terms of a changing labour market, the key barriers to getting people with disabilities when they realise it is an issue because they are losing working, some of the enablers. We could certainly good people and whether they really want to tackle send that across. We are also talking to another big it, because it is quite a big issue. retailer about some of the ways in which they might Mr Isles: I think this is where the market is going to be able to make use of their ability to employ people come into play. If you look at demographic trends, with disabilities and actually reach out to some of and we are comparatively better oV than some of our those who would like work but who may be on European country partners in this regard, employers incapacity benefit at the moment. I should be happy are going to have to rethink their approach to early to do that. retirement and discarding people at 50–55. Where are they going to get their workers from? They are Q487Sir Robert Smith: One of the big challenges a going to have to look at so-called atypical groups of lot of the sectors we looked at say they face is a skill workers to get their workforce. shortage or recruitment crisis. What, from your Ms Jones: One of the things to mention as well, is experience, is the view though of them recognising that it is usually assumed that it is men over 55 who that at the other end of the scale they have people are the group who are going to suVer particularly who they make retire who perhaps still have plenty from being made redundant or being forced to to oVer the company? What is the view nowadays of retire, when actually many women over 55 are a retirement age? Is it a fictional age, or should unemployed. It tends not to be a group that is people be judged on their merits whatever their age? focused on quite as much because more women may Ms Jones: We would argue that people should be stay at home because of caring responsibilities. judged on their merit and their ability to do the job Certainly the statistics I have seen suggest that it is and age is not necessarily an indication. For a big issue and given the poverty of many women in example, I have to resort to an anecdote here, but a retirement, because they have taken time out to care debate on Newsnight argued that older people were for dependants, that is an issue which we think unable to use ICT, so would be unable to lead should rise up the agenda much more as well. organisations. It is a gross generalisation, when you Mr Berry: Okay; thank you very much indeed. That see that one of the key growths in internet usage is has been very helpful and extremely interesting, so so-called silver surfers. I think some of the thank you again. 3055811005 Page Type [O] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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Witnesses: Mr Gerry SutcliVe, a Member of the House, Under-Secretary of State for Employment Relations, Consumers and Postal Services, Ms Janice Munday, Director of Employment Relations and Ms Beatrice Parrish, Senior Economic Advisor, Employment Relations, Department of Trade and Industry, examined.

Q488 Mr Berry: Minister, good afternoon and responsibilities within the same job and through the welcome. We are ahead of schedule by three ability and willingness of employers to adjust minutes, so we will not detain you unnecessarily. employment or invest in training. All of these things Shall we get on with it? Flexible labour markets, are looked at in Wim Kok’s report and are key what does that mean? components of adaptability. Mr SutcliVe: For the Government it means to continue the excellent position that we are in at the Q491 Mr Berry: Out of interest, when did the moment where we have more people in work now terminology change from flexibility to adaptability? than ever before, the lowest level of unemployment Mr SutcliVe: It is something I am trying to initiate. and we want to maintain the sound macro-economic position that we are in. I would perhaps prefer to use the word “adaptability” rather than “flexibility” Q492 Mr Berry: That is fine. We like to be first in this because flexibility sometimes creates the wrong Committee. V impression: that it is about people working harder, Mr Sutcli e: If the Committee will help me with working more vigorously, when it could be about that, I am sure that we can. working more productively through better investment decisions, through working smarter. We Q493 Mr Berry: Your submission talks about think that adaptability has been a key component of flexibility. the UK labour market, which puts us in a very Mr SutcliVe: I have been thinking about this a lot strong position when you measure that against our actually over this last period. Flexibility has diVerent European colleagues. Yes, it is important that we connotations. If you say flexibility, in my former role signed up for the European social model but if you as a trade union oYcer, to my members in a look at the Lisbon targets, the Lisbon agenda and workplace situation, they would see flexibility as the Wim Kok task force report, you will see that the meaning they had to work harder. It is more about UK is ahead of the game in terms of trying to reach adaptability in terms of the changes that we are those agreed targets. trying to achieve because of the changing nature of work patterns and the workplace. I very much Q489 Mr Berry: Some of us were saying some very welcome the opportunity to come before the nice things about the UK’s performance in your Committee this afternoon and look forward to absence earlier, just to put that on the record. the future. This is about making sure that people Mr SutcliVe: I am very pleased. raise their games, employers and employers’ representatives, employees and employees’ representatives, in terms of the challenges that we Q490 Mr Berry: In terms of flexibility or are facing in globalisation, in a more competitive adaptability, obviously this covers a number of environment. It is about changing some of the aspects, a number of issues. Which are the areas of attitudes and viewpoints as to how we need to flexibility or adaptability which the government are continue to be in the strong position that we are in keenest to promote? Be specific. with employment. Mr SutcliVe: The driving force around productivity is that the Government set out its strategy in terms of investment, innovation, skills, enterprise and Q494 Mr Berry: How important is more regulation in achieving those desirable objectives? competition being key drivers towards increased V productivity. We want the adaptability around that. Mr Sutcli e: Regulation has to be a balance. There It is interesting in the UK, that you can look at the was a necessary restoring of a balance from 1997 to changing work patterns in terms of flexibility, the what happened previously. I think the introduction change in how people see work and remembering of the Information and Consultation Directive is a that in my view legislation is only to set minimum good example of this and we have ended up with a standards so that work practices evolve and develop, framework agreement between the CBI and the so you have the flexible working arrangements in TUC which sets out the structure for agreement and terms of parents being able to apply for appropriate I think that has been tremendously important. So time oV for caring responsibilities and the flexibility regulations are minimum standards which are set, that you could go down in that particular way. We minimum legal requirements and where we can get see these as key components and we also see that agreement from social dialogue, that is how we there is a change in the structure of industry and should try and move forward. there is a change in the way that the UK does work. Adaptability and change are key elements to what Q495 Sir Robert Smith: Just building on that, we want to try and achieve. I will hand over to my because obviously a lot of the regulation comes from technical experts on my left and my right in terms of a European-wide framework, how do you respond more definition. to the concern that the UK model has been more Ms Munday: If you look at adaptability, it can arise successful because it is diVerent and that as more and in many ways. One is how quickly wages adapt to more regulations become on a European-wide shock, one is the willingness or ability of people to framework, we are likely to suVer because they will move into new jobs or sectors or to adapt to new go with the majority on mainland Europe. 3055811005 Page Type [E] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 Department of Trade and Industry

Mr SutcliVe: We have put a very strong case in raise the game, because things are changing.We Europe. We were happy to sign up for the Social need to find how people do things better, how we get Chapter for the reasons that I outlined earlier in people to return to work who have been inactive in terms of the holiday arrangements, the working the labour market. Good examples exist in Europe hour arrangements. We have been very secure in our and elsewhere. We are constantly seeking belief that to achieve the Lisbon targets, to do what improvement, but we do that from a very strong Wim Kok is asking of us in the report, is to argue the position in the employment terms that we have and case for adaptability and we want to see a high the adaptability and the understanding of the involvement in the labour market, rather than the challenges that exist. There may be public positions view of the previous government, which was to have that employers’ organisations and employees’ a higher level of unemployment. We are arguing organisations have, but there is a general acceptance with our European colleagues, other Member that the UK is in a strong position. States, and I have been talking to most of the employment ministers in the Member States on issues like the Agency Worker Directive and the Q498 Mr Hoyle: Can we go on to the Working Time Working Time Directive. On the bigger picture Directive and flexible working? I know this is about why adaptability in the market is important, something very dear to your heart, Minister. Or we are gaining allies in terms of regulation not should we now say adaptable working? I think we always being the appropriate way forward, but that will stick with flexible working for the moment. I just it can be dealt with through other issues, through wonder, in the case of trying to maintain the opt-out competition or better competitive involvement. from the Working Time Directive, why the Government wishes to do that. Do you not believe There are other ways of dealing with things and I Y think the UK view is now coming to the fore in terms there is su cient flexibility built into the average of that approach. I know that MPs will be aware of period now to allow it? V the current debate in Europe about moving away Mr Sutcli e: The Working Time Directive has from regulation to greater competitive values. become a bit of a cause cele`bre in a sense and there is a greater attachment to its importance than perhaps there needs to be. We all agree about the need to Q496 Sir Robert Smith: How has the enlargement make sure that people are not forced into working altered the dynamic in which you have had to over-long hours and that people should be protected operate in terms of that debate? from exploitation. The Working Time Directive is Mr SutcliVe: Clearly, with the addition of the new actually a health and safety directive and if you look Member States, I do not think it is surprising at the UK’s health and safety record compared with because we are making the case, they favour our any other European Member State, we are in the approach because of our record of employment and upper regions of those comparisons. We are our record of activity in terms of employment concerned about our long-hours culture, we activity and how we are trying to create the balance introduced a project to look at the issues around between making sure that there are minimum long hours and we are for tackling any abuses which standards in place to make sure that people are not exist and indeed to call together the CBI and TUC exploited, which is a key element as far as we are to discuss any abuses that they say exist. It is not that concerned—we may return to this perhaps on some we want to see an exploitation of workers, but we of the other issues that the Committee might want to think it is an issue of choice, in terms of individual talk about—and that we are achieving a good choice, that people should be allowed, if they so balance. So the newer Member States are looking wish, without any burden being placed upon them, around at what goes on within Europe and seeing to have the right to determine their working hours. that the UK model is perhaps one to support. We are We do not think that this is an appropriate vehicle also seeing change in the longer-standing members to be used in the way that the Commission are using of the European Union. We are going through it. At the last meeting of the Employment Council discussions on a reform package in Germany, we are the Commission quite openly said this was about seeing changes to employment legislation in France, protected collective agreements. Now there is a changes to the insolvency laws, etcetera. I believe discussion to be had about collective agreements, that people are seeing us as an appropriate model to but we do not think that that should be on the back follow. It throws up the wider issue as well, that there of the Working Time Directive. We are quite happy is no one-size-fits-all approach to the whole of with the reference period, the whole of the position V Europe and what suits di erent Member States is that exists in the Working Time Directive, but we important. That is why we have defended our think that the individual opt-out should be retained. decision on the Working Time Directive and the We are not saying that should be forced on other issue of the opt-out. Member States, we are saying that is what works well in the UK and therefore should be retained in Q497Sir Robert Smith: Looking round the other the UK. We were happy to discuss alterations to that countries in Europe and outside it, do you see any directive with the Commission and with the Dutch role models where we could learn anything in terms presidency, but at an early stage in the discussions of labour market policies? the Commission did not want to deviate from their Mr SutcliVe: There are always opportunities to find agreed position within the Commission and I think better ways of doing things and that is why I talk that that gave us an inability to resolve some of the about globalisation and the need for everybody to issues that we might want to resolve about changing 3055811005 Page Type [O] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 Department of Trade and Industry some of the reference periods. The UK view point is are having and why information consultation is that the individual opt-out should be maintained important, in the new agenda, in new relationship, I and that we should guard against people being would argue that we have to look at the big picture exploited. and look at things in the round, not just cherry pick Ms Munday: One of the things the Commission has certain aspects of why a particular piece of proposed is that the reference period could legislation is better in one place than it is elsewhere. automatically be extended to 52 weeks. About nine% of full-time employees in the UK, that is 1.7 million, would still be aVected because they tell us Q502 Mr Hoyle: That does worry me. We have had they usually work more than 48 hours over a year. evidence before us before, and I respect your views One of the things we are doing is trying to dig further Minister, but Vauxhall and Ford have pulled out of into the statistics and the evidence to find out exactly the UK because it has been easier to close here and who these people are, but certainly surveys are cheaper to close here than in Germany. We have showing that there are people for whom this would seen more productive factories being closed because not solve their problems. it is easier. What do you say to that? Mr SutcliVe: I do not think it is easier. I think it is Q499 Mr Hoyle: In continuing with the opt-out, who quicker and that might have been part of it. do you think it benefits the most, the employer or the employee? Mr SutcliVe: I think both. Q503 Mr Hoyle: It is easier not quicker. Mr SutcliVe: If you look at the timeframe that is Q500 Mr Hoyle: Equally or . . . ? used in terms of the redundancy payments Act that Mr SutcliVe: Providing the protection is there and we have and some of the insolvency legislation that one of the recommendations that has been under we have, there is an argument that it could be discussion with the Dutch presidency was improved quicker in the UK. There is a comparison table record-keeping for people using the opt-out so you which shows the UK is mid way in the range in terms could evaluate in what sectors it was being used and of European comparisons. Those decisions are if there were abuses, you could deal with them, issues commercial decisions based on a whole range of around the opt-out being sent along with the oVer of factors; I do not think those decisions are based just a job which we thought were unfair and which we upon employment legislation or employment law. It would not support. I think, used in the right way, in throws up a big problem for us in terms of the context of the changed agenda that we are trying productivity issues, the globalisation that we have to promote on flexible working arrangements—and and the stiV competition we now face from emerging that is why we introduced flexible working economies like China and India. This is why it is arrangements into legislation and they will be important that we have a new approach to industrial reviewed in 2006—it could equally balance the relations and we move away from an adversarial employer and the employee within the right type of discussion to a more informed approach. framework. The charge from the trade unions is that That is why information and consultation are vital. in certain sectors there are abuses. What we have We were opposed to those employers who sacked argued is that if they tell us where those abuses are, people by text message, who do not give employees we will put conditions in place to stop that. The opt- information about the development of a company, out has worked well, it has benefited the UK; clearly where a company is going, what the training so because of the employment record we have. requirements are going to be. We all know now that the days of going into a job at 16 and staying in that Q501 Mr Hoyle: That is why I asked whom you same job until you are 65 are no longer going to be think it benefits. It seems strange that the employers the case, that individuals themselves, through say they wish is to keep the opt-out yet the trade lifelong learning and development, are going to have unions say they wish you to follow the other two, three or four careers. There needs to be a new Member States. V arrangement, a new deal if you like, between the Mr Sutcli e: One of the things that we have to watch employer and the employee about the future of out for here and why I talk about the changed organisations and that is why the Government, position that we are in is that we often hear in the through its economic policies, has developed things UK, and it is right and proper that trade unions have like regional development agencies to make sure we aspirations for their membership, that is their role, support local businesses in particular regions. and what you tend to see sometimes, that they will cherry pick some of the best, in their terms, European legislation, but they will not tell you the Q504 Mr Berry: On the specific point that Lindsay whole picture. So they will say that it is easier to get raised about the ease and/or cost of dismissing rid of somebody in the UK than it is elsewhere in employees, if your department has any evidence on Europe. Well, that is not the case. It is the case in this issue that we have not already seen, we should terms that it is quicker, but it is not easier and it is be very grateful to receive it. Clearly, you may have not more cost-eVective.1 In the discussions that we some perceptions but what is the evidence out there? We should like to see what evidence you have on 1 Note by witness: It is cheaper, but not easier and quicker to make UK workers redundant compared with workers in that, because it would be very helpful to the other EU countries as a whole. Committee. 3055811005 Page Type [E] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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Mr SutcliVe: We shall certainly do that. What we Mr SutcliVe: There is an acknowledgement, because can provide you with is not only what happens in the of the labour market position that we have, that they UK but how that compares with what happens have to oVer enhanced conditions to people they elsewhere and some of the new legislation which has want to retain and people they want to get back into been considered elsewhere in most Member States. the labour market. I think more needs to be done. Mr Berry: Yes, the comparison issue is important. That is why I said right at the outset, that it is about Thank you. raising the game on all sides in terms of the Mr Hoyle: Thank you for that. It would help if you representatives of employers and the representatives could give us that evidence, especially the Vauxhall/ of trade unions, to make sure that people fully Ford one, because that would really throw previous understand the benefits to business of getting people evidence in the bin. back into the labour market. Ms Parrish: We have surveyed recently and that showed quite a wide support of their work/life Q505 Mr Berry: A particular reference to Vauxhall/ balance type measures and policies within their Ford is the request now from the Committee, if that workplaces. They see the benefits of those sorts of is possible. practices as a happier workforce, more retention of V Mr Sutcli e: Given the Committee’s wide remit, I high quality of staV and so forth. We also did a think it would be better if we just explain what the survey three years previously and that sort of position is in the UK and how it compares with other appreciation does seem to be improved. Those countries. people who did introduce or do have flexible Mr Berry: We should be grateful. These are working arrangements have not really found that empirical matters actually and we should like to see there is a huge cost involved. The majority did not the evidence your department has. find there was a cost: some found there was a small cost and quite a small minority found that there were Q506 Mr Hoyle: How to respond to The Work substantial costs. The evidence of understanding in Foundation’s concern that work-life balance business is there probably from that survey. policies are being inserted into an unreformed work environment? Q508 Mr Hoyle: Maybe not yet, but it is getting V Mr Sutcli e: We do not necessarily agree that it is set there. Would it be fair to say that? out quite like that. What we are trying to do, and I Mr SutcliVe: Our campaign that is out there, is doing said earlier that employment legislation was a very well. As Beatrice said, the morale changes minimum standard, is to look at the number of within the workplace lead to better productivity, less people in work now, the number of people who have absenteeism. They are all benefits that can be made been inactive that we are trying to get back into to the bottom line by oVering flexible working. We work, women returners, people who have been long- do acknowledge that there are some sectors where term sick or perhaps educational issues. We are there are greater diYculties than others, but it is trying to get people back into work by getting something that we want to pursue and do it from a V V employers to o er a di erent work pattern. Many position of strength because of the labour market V employers see the business case for o ering flexible position we have in the UK. working because of the nature of the labour market and their need to keep people and retain people. I initially presented awards at the Parents at Work Q509 Sir Robert Smith: On adaptable working, is it event which showed, in a whole range of not time for employers to judge people on their organisations, how flexible working can be abilities and not to say because they reach a certain advantageous to business and can be advantageous age that they should no longer be working for them to individuals. and bring in modern human resources management Ms Munday: The research we did after the first year and judge people on their merits and not their age? of the duty on employers to give serious Mr SutcliVe: It is and clearly this is a very diYcult consideration to requests for flexible working has issue that government is currently grappling with in shown that nine out of 10 requests have been either terms of the advancements in medical science. accepted in full or in part, which is a significant People are living longer and are able to continue increase on what was there before the legislation working longer if they so wish. We do not want to be came along. We think we can say, in respect of the in a position to force people to work longer who did Work Foundation’s work, that this is a moving not want to work longer. We are looking at the target and more and more employers, as parents of eVects on labour market conditions of people being young children are encouraged to make requests, are allowed to work longer if they so wish. I do agree finding and exploring the benefits of flexible with you. I think people should be judged on merit working. right across the range, regardless of a whole range of issues. Q507Mr Hoyle: Are you satisfied that businesses are actually embracing flexible working? Do they really Q510 Sir Robert Smith: Just as a lot of industry understand there are benefits there, if they were comes to us saying there is a great skills shortage, actually truly to take it on board? Or do you think well they have a lot of skilled people at the other end there is a real reluctance by business? of the age range, who may want to carry on because 3055811005 Page Type [O] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 Department of Trade and Industry they are fit, healthy and still motivated. It seems very Mr SutcliVe: The key thing about national minimum strange to say there is an age at which, regardless of wage is clearly the Low Pay Commission. I think it your ability, you reach retirement. was the right and appropriate step to have a Mr SutcliVe: There is, but there are complex issues commission made up of all sectors of industry or all around that and I am sure that members are well stakeholders that were involved. aware of those issues in terms of pension entitlement, the issues around industrial tribunals. Q514 Mr Berry: We are still left in the UK with one We have to look at a whole set of things to of the widest distributions of income in the accommodate people working longer. There are European Union. To what extent do you think the many reasons for the skills shortage as well. The minimum wage legislation has a role in addressing drivers of productivity are about investment in skills that income inequality or are there other policies and development and I think this Government has a that the Government are pursuing to address it? proud record in terms of trying to get people back Mr SutcliVe: Clearly the tax credit situation in into work. There are issues around measures of addition to the minimum wage has improved the productivity then, in terms of being able to be more position for lots of people. productive with fewer people in work, but if you get people into work it is about raising their standards as well. That is why lifelong learning, the issues around Q515 Mr Berry: What about people on very high union learning reps and developing people’s incomes? potential in the workplace is important as well, so Mr SutcliVe: If you look at the figures, and I am sure you raise the standard and get people to raise their Beatrice has the figures to hand, in terms of incomes own standards for the reasons we gave about the and the growth in incomes. need to change working patterns because of what is Ms Parrish: There was a big increase in dispersion of going to happen. earnings through the 1990s, but this has stabilised and in fact very recently we have seen the earnings of the bottom 10% growing slightly faster than the top Q511 Mr Berry: Could we turn to the National 10%. Was that your question? Minimum Wage? Can you give us your estimates of the number of people who have benefited from the most recent rise in the National Minimum Wage? Q516 Mr Berry: It related to my question, yes. The Ms Parrish: We estimate that around 1.1 million issue in a sense is that we do have a very high workers should benefit from the increase in inequality of income in the UK. Most evidence October 2004. suggests that it has been consistently growing over the last 10 or 15 years or so. My question really was that the national minimum wage and tax credits and Q512 Mr Berry: It seems to be the case that the so on at the moment address one end of the labour Government has consistently over-estimated the market, so what about the other end of the labour number who benefited from previous increases. market too? V Independent research makes this allegation on a Mr Sutcli e: Within the department, the Secretary regular basis. Do you agree with that? If so, does that of State on a number of occasions, as the Chancellor not mean there is scope to raise the minimum wage has, has urged restraint and caution and there are even further? issues that the department looks at in its discussions Ms Parrish: There is a combination of two things with the CBI, with a whole range of organisations about rewarding success not rewarding failure. Just which are happening. First of all, in the past on the national minimum wage and the tax credits, statistics have been revised downwards, so when we the example I would give is a person with one child are making our estimates and looking to see how who works full time at the national minimum wage many workers might benefit, oYcial statistics have and presently receives around £6.70 an hour after been revised down. Probably what is more taking tax credits into account. It is those important is that we make our estimates and then relationships that the Committee needs to look at in companies are raising their wages in anticipation of terms of raising the pay for people on low incomes. the national minimum wage. So our final estimates of how many people have benefited end up being slightly lower because there is what some people Q517Judy Mallaber: The Minimum Wage Act is have described as a sort of snow plough eVect. You meant to cover homeworkers and give protection are getting employers not wanting to be seen as against victimisation, but as part of our evidence, the minimum wage employers, so the rate is announced TUC gave us a submission pointing to a particular and quite quickly people are bringing their increases case which went to the Employment Appeal in, because it coincides with their pay rise rounds, Tribunal, which showed just how easy it is, because well before the October increase. Our estimates of the status of atypical workers and the legal probably err on the side of being conservative. definitions, for employers to evade that specifically by inserting a clause in the contract to show that there was no mutual obligation. As I was on the Q513 Mr Berry: That is entirely consistent with the Minimum Wage Bill Committee when this was view presented by one of the trade unions, so that going through, I find this rather disturbing. It would should cheer you up. be helpful to know what the current position is on 3055811005 Page Type [E] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 Department of Trade and Industry the review around atypical workers and what the in place. With the introduction of migrant workers, possibilities are of getting a single clear definition of with a great resilience on issues around the lower end the term “working”. of the labour market, we have got to be even more Mr SutcliVe: On the employment statute review, aware of exploitation that can take place and put in clearly we have consulted, are still consulting, still place enforcement mechanisms to make sure that trying to make decisions relating to that review and people are not exploited. We have done that in terms we are hoping to do that in the coming year. There of advice to Polish workers, to Lithuanian workers, are some very diYcult issues to deal with in that. in terms of areas in the country where they are You will be aware of the changes that we made in coming to work. terms of calculations of homeworkers pay, we worked with the National Group on Homeworking Q518 Judy Mallaber: Apart from enforcement and a and continue to do that. There is a lot of evidence number of very positive projects to reach out to around that we are trying to improve the situation, homeworkers, are there not arguments for changing looking at enforcement issues as well. the legal definitions so there is a clearer single Ms Munday: One of the problems we found with definition of the term “worker” which could also be homeworkers is that there is quite a lot of ignorance phrased in such a way that it would override specific, about the rights that they do have and therefore it is clear changes made by employers specifically to possible for them to write those rights away in evade that legal definition? That is clearly what has contracts. One of the things we are looking at is how V happened in the particular case quoted, which shows we more e ectively get information to that group just how easy it is for employers to do that. who are, by their nature, very, very hard to reach. Mr SutcliVe: That is why we are taking time on the One of the things we have done is that we have review. There have been over 400 written responses. funded the National Group on Homeworking to Ms Munday: We are expecting a response in the employ a worker to try to get out into this group and foreseeable future. make sure they are aware of the rights that they Mr SutcliVe: We are hoping to be able to make have. V announcements this year in terms of that, and that Mr Sutcli e: We estimate that there are about may accommodate some of the issues. 270,000 homeworkers in the UK and there is a whole Ms Munday: To give you another example, the range of issues, not to mention the status and the distinction between self-employed status and other enforcement issues around the national minimum forms of status is a very key issue for the wage, in terms of getting to those workers with construction industry. Things which might seem advice and support, which are issues we are simple in one sector become more complicated when discussing with the trade unions as well. It is you look at another sector, which is why we are still traditionally an area where there is not a great deal looking at all the responses. of trade union membership. We are actively trying to Mr SutcliVe: The regional development agencies are find the routes in. We are also looking at other things looking at the issue of homeworking as well and, that can be done. There are the supply chain issues again, people can be more specific then in in relation to organisations and how ethical trade, geographical terms, where homeworkers are and corporate social responsibility and issues like that some of the issues that aVect this. can be addressed in terms of employment practices throughout the supply chain. We are looking at a whole range of areas where we can try and be of Q519 Richard Burden: I am going to ask you about assistance. Again, I think this Government has a compliance issues, but could I just stay on the proud record in trying to tackle what is a very homeworking issue for a moment and ask you diYcult area for a whole range of reasons, where whether you are clear that within your own some homeworkers themselves do not come forward departments, issues of homeworking relating to because they are frightened of their individual employment are actually suYciently joined-up with positions in relation to that homework, which in the work you have been doing on homeworking as many cases can be a crucial part of their income. far as consumer protection is concerned? About four This is not an easy area to look at and we are years ago, I brought in a Private Member’s Bill working with the groups Janice has mentioned to try unsuccessfully, which was actually about the other and improve the situation. It is incremental. We are end, the consumer end of it. One of the problems on continually looking at ways in which we can be of that is issues about working or homeworking and it benefit to people. Lots of homeworkers are in a relates to the self-employment issue. At that time, it position where it works for them in the was in a sense, being dealt with by the consumer end circumstances that they have and they have a of things and employment was kept separate. It reasonable relationship with the people who provide seems to me that if the right kind of attention is going homework. What we are always looking at is this to be given to the homeworking issue, those two ends element of exploitation, to make sure that we stop need to be brought together a bit. Is any work being exploitation, and, through the enforcement of the done on that? national minimum wage, where we have recovered Mr SutcliVe: It is not just our department and the large amounts of money over the years that the Act gangmasters issues threw this up in terms of the has been in place, it will be work which will continue. Defra Select Committee report and the diVerent It is an important issue aVecting the UK labour government departments which had a role to play or market. We already have the gangmaster legislation a part of a role to play in the whole of the issue. We 3055811005 Page Type [O] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 Department of Trade and Industry are looking across government. I chair a sub- with a whole sector of small businesses, industry and committee of the Cabinet Committee looking at trade unions about how to get information down to employment issues and many of these issues around small businesses in a practical way that does not enforcement, what is happening at the lower end of inhibit the way that they operate and the way that the labour market, are being looked at in a joined- they work. up way. We do not miss a trick in terms of the ability to look at the enforcement aspect. I agree with you Q523 Richard Burden: People round the table here that we have to make sure that there is a joined-up probably would not make the argument that certain approach to these issues and the complexity of the other parties would, but it has been put to us on a issues around the status position in terms of where number of occasions and put to you that for small people are. businesses, say on the Working Time Directive, even if there were no objection to the principle of that, or Q520 Richard Burden: One example is the operation indeed the objectives of it, issues of paperwork and of things like Stop Now orders, which are seen from that kind of thing could actually be made an awful the consumer end of things. Has any work been done lot simpler than they are. I just wonder what to monitor or to look at how eVective they have been mechanisms exist to try to meet those practical issues in regulating the employment relationship between without going down the road of saying get rid of the homeworker and the trader. regulation. Mr SutcliVe: Not as much as could be done and that Mr SutcliVe: One of the ways has been through the is probably a useful area for us to return to and look human resource pilots which we have tried to at. Quite rightly in fact the Stop orders and the develop to see what works best in what sector. Enterprise Act legislation have benefited the consumers. Q524 Richard Burden: How do they report back? Mr SutcliVe: What has happened is that 11 pilots Q521 Richard Burden: May I move on to issues of took place up and down the country in particular compliance. What kind of ongoing assessments do sectors to see what was the best way of giving you make of compliance costs, particularly thinking information not only to small businesses but to the of the situation of small businesses? voluntary sector and to look at ways to make sure Mr SutcliVe: I have a wonderful figure for that the important issue of employment legislation the Committee here. The ongoing annual got down to where it needed to be. Those pilots have implementation costs are under three pence per taken place. We are now looking at the results of employee job per week. I am sure that will be a figure those pilots and deciding which way to move in that will be contested and discussed by a number of terms of their development right across the piece. organisations. Q525 Richard Burden: Are there any timescales for Q522 Richard Burden: Three pence per week to when we might get any kind of information? cover what? Mr SutcliVe: We are trying to do that as soon as Mr SutcliVe: Three pence per employee job per week possible. There was an acknowledgement from the is the ongoing annual implementation cost of people involved in the pilots that these were very employment regulation. I think there is an successful and appropriate. The thing for me is that interesting dilemma here, because we hear the cry small businesses will go to a bank and get advice on almost on a daily basis, that there is too much their accounts and how they should do things, go to legislation, too much regulation and it is aVecting a lawyer for their legal requirements. Employment and burdening business. When you try to dissect that legislation and employment policies should play an and you ask which regulations they do not want to equal part in all that. We need to find ways of getting see, nobody will come forward and tell you which that too. I do not think people deliberately flout regulations they do not want and it is a challenge. I employment legislation, but it is sometimes diYcult know there are not many Conservative members of for small businesses to cope with the complexity of the Committee here today, but it is a challenge that that. We need to find mechanisms, whether through I give back to those people who say they are regional development agencies, whether through burdened by regulation and I ask them which employment projects, to oVer that advice and regulation it is that they do not particularly want. On support at a practical level so people do not get the whole most people tend to agree and the national themselves into diYculty. The worst thing that can minimum wage is a good example, where there was happen is that people ignore the legislation and then failure to agree but then eventually everybody did a problem occurs and they have to deal with the agree it was a good thing to do. What I think the consequences of that, which usually costs them quite diYculties are is that people do not weigh the a lot of money. benefits of regulation that comes forward. It comes back to the issues we were talking earlier about Q526 Richard Burden: You said that you do not flexible working and the business case which can be believe people deliberately flout the legislation and made for flexible working. There are problems in regulations but clearly some people would. I just relation to small businesses in terms of how they wonder whether you are aware of any particular interpret, collect and deal with the amount of areas where you suspect the regulations are being regulation that comes forward. The department, ignored and flouted and what can be done about through human resource pilots, is trying to work that. 3055811005 Page Type [E] 13-05-05 22:43:40 Pag Table: COENEW PPSysB Unit: PAG5

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18 January 2005 Department of Trade and Industry

Mr SutcliVe: I believe that the majority of Q529 Judy Mallaber: If you have any evidence, it employers, small, medium or large, do not would be helpful to have that. In slight contradiction deliberately flout the legislation. There are rogue to the points being made earlier, where there was employers who do and some of those rogue discussion about whether it is easier to hire and fire employers are at the bottom of the labour market, in this country than in other countries, how do you which is the point I was making earlier about the respond to the opposite accusation, which is that need to make sure that we have something in place government tends consistently to gold-plate EU to deal with that in terms of enforcement. I am not legislation? Do you have any evidence? particularly aware of any particular sector where Mr SutcliVe: This is the point I was making about people deliberately flout employment legislation. European directives. We do what is best for the UK Ms Munday: Gangmasters are an area where there economy, based on a very strong position in terms of has been very clear identification of significant the UK labour market, high employment, low breaches of law and new legislation has been unemployment. We look at these issues as they come brought in to deal with that. In our own area we have along and how best to interpret them in the best acted against allegations of the way that some interests of the UK labour market. I do not think employment agencies, particularly in the film that is a case of gold-plating. What we try to do is to industry, behave and have significant powers now to consult fully with all sectors of industry and business take action against those rogue employers. Where to make sure that they are appropriate and will lead areas are identified, we have put in place to a positive outcome rather than a negative mechanisms for tackling them. outcome. I do not think that we gold-plate in any way. I think we make sure that the legislation we Q527Richard Burden: May I put one example to you introduce is appropriate to the UK labour market. from evidence we had this morning from Amicus in relation to union recognition procedures? They seemed to be of the view that there is, not widespread Q530 Judy Mallaber: Do we take up instances, if we but nevertheless significant, flouting or getting do find out that other countries are operating in a round union recognition rules in ways such as way where they are not implementing legislation vexatious picking of bargaining groups and in some rigorously and where we might be seen to be at a cases union-busting techniques learned in the US. Is disadvantage because we are in fact implementing the department looking at anything in those areas? things in the way we think is appropriate? V Mr Sutcli e: We introduced, in the Employment Bill Mr SutcliVe: There are clearly issues around which has just gone through, protection in those interpretation, about who is included and who is not circumstances relating to the ballots on recognition, included in certain directives, which we have taken the position leading up to the ballot taking place, the up and have explained our position to the timeframe there. We have introduced legislation Commission. Challenges are made the other way; similar to the Representation of the People’s Act, there are things which benefit us, which other where people can be found guilty of abusing the Member States complain about. On the whole, I legislation and can be dealt with appropriately, think that we enjoy a good relationship in terms of because we were aware of that type of incident. It is employment ministers sitting down to discuss the also very much around the Wilson and Palmer competitive eVects which challenge all our economic judgments which took place. The Employment Bill which has just gone through the House addresses positions. We are in a very strong position in the UK those issues. to make sure that we ensure that the laws and directives we implement are appropriate and Q528 Judy Mallaber: Do you monitor compliance in develop the UK labour market. competitor countries as well? Is there any evidence Mr Berry: Minister, may I thank you and your to suggest that the UK is more rigorous in its colleagues very much for being with us this enforcement than other Member States? afternoon? It is a pleasure, as always, to see you. We Mr SutcliVe: We can provide the Committee with may have one or two other questions we can put in evidence of where we think we stand in comparison writing and indeed if there is any further evidence with other Member States. Because of the diVerent you feel is relevant to the questions which have been natures of labour markets in each Member State, raised this afternoon, do get in touch. Thank you sometimes the comparisons are not easy to make. again. 3013721016 Page Type [SO] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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APPENDIX 1

Memorandum by Amicus

Index Paragraphs Introduction 1–4 Flexibility 5–9 Flexible Working 10–11 Investment 12–13 Employment Regulation 14–17 A Skilled Workforce 18–21

Summary In this submission, Amicus has concentrated upon the need to define what is meant by flexibility in the labour market, its impact upon investment in the UK economy and the issues which need to be addressed to ensure that UK workers are not disadvantaged by the failure to provide appropriate employment regulation. Amicus has also addressed the qualitative issues which employment regulation impacts upon in terms of job category and earnings. Although the Committee has identified labour market flexibility as its key issue to be considered, Amicus has also taken the opportunity to raise the overall need to tackle the strategic training needs to cope with skill gaps and shortages. The submission argues: — Any debate about flexibility must address the positive aspects of employee protection as well as the restrictive approach of employer freedom to hire and fire at will. — Employers argue consistently for the limiting of employee rights on the false premise that this has a negative impact on productivity. — The failure of government to recognise social planning as an integral part of the industrial economy has led to a European two-tier workforce with the UK viewed as an easy option for closure and redundancy. — Functional flexibility introduced with full employee participation can lead to improved productivity and greater competitiveness. — Evidence illustrates that the UK flexible labour market has failed to bring the real gains in productivity and competitiveness promised. — It is also apparent that the progression towards full employment has masked the shifts in the labour market reflected in the decline in manufacturing jobs — Government should adopt a more positive approach to employment regulation where this enhances the working environment or conditions of UK workers and, in particular, should ensure that all workers are protected under UK legislation. — Negative impact of labour market flexibility based on numeric factors rather than functional, will undermine government strategy to create a high-skilled, added value workforce in the UK.

Introduction 1. The Amicus Trade Union welcomes the opportunity to contribute to this inquiry into UK Employment Regulation. As the UK’s largest general trade union covering both public and private sector employment, Amicus is well placed to understand the impact of legislative changes on both employers and employees. 2. In this submission to the Trade and Industry Committee, Amicus will address the issue of the flexible labour market and the investment implications that this has for the UK economy. We shall also draw attention to comparative figures for other major European Union countries. 3. Amicus is concerned about the need to establish a level playing field for UK workers in their treatment both at the workplace and at times of employer restructuring and potential job loss. 4. We shall look at the impact of regulation on the quality of jobs and earnings within the UK and refer to the strategic needs for tackling skill gaps and shortages. 3013721001 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Flexibility 5. In recognising that the concept of flexibility can provide opportunities for improved productivity and more eVective working, it is important to define what is meant by flexibility. Too often flexibility is a pseudonym for the freedom to hire and fire at will, to avoid regulations introduced to protect workers such as the working time directive and to restrict the ability of trade unions to organise in the workplace. 6. Current flexibility is controlled by the employer rather than employee. Employee rights when introduced are welcome but frequently do not go far enough to allow individuals to take advantage of those rights for economic reasons. Employers cry wolf at each new right, eg family friendly developments, whilst failing to produce any evidence of impact on productivity or eVectiveness or competitiveness. 7. The failure of government to address social planning as an integral part of the industrial economy has meant that the employer’s flexibility is greatly enhanced to the cost of the employee. Redundancy protection in the UK is minimal and frequently means that lip service is paid to the regulations on consultation. As an increasing proportion of the workforce move into employment in smaller establishments, even the proposed new regulations on Information and Consultation will do little to protect the position of millions of UK workers as it does not apply to them immediately, or in cases of less than 50 employees, ever. 8. The penalties against employers who abuse the existing employment rights of workers are minimal and do not act as a deterrent. For many workers the extension of the flexible labour market means greater job insecurity and unacceptable workplace practices. 9. Amicus is not opposed to the concept of functional flexibility in the workplace where this is introduced through consultation and the full participation of the workforce. We have been instrumental in working with employers to achieve team working and multi skilling which has both enhanced the individuals’ skill levels and resulted in improved productivity and greater competitiveness. However, too often the concept of flexibility from an employers’ perspective is about numeric flexibility which is about greater use of temporary and agency labour and knee-jerk reactions to dips in demand for products.

Flexible Working 10. Flexible working for employees provides an opening up of the employment market to many who would otherwise not be able to work and Amicus welcomes recent improvements in legislation in this area. This widening of the labour pool has the potential to help address the skill needs of a number of industries. Progressive employers have embraced these provisions and in some cases enhanced them in an eVort to position themselves as employers of choice. This would clearly not be done if they felt that this would damage their competitive position. 11. Equally, we are concerned that without adequate employment regulation, workers who choose to work part-time or are employed by agencies, will be disadvantaged and leave themselves open to unfair employment practices.

Investment 12. Much has been made of the benefits that a flexible labour market brings in terms of attracting investment into the UK (include comparisons with Germany and France over last 10 years). 13. Although the numbers employed in the UK now are higher than ever the quality of the jobs available and the levels of earnings do little to support the government’s stated aim of achieving a high-skilled, added value workforce. There is little evidence to support the contention that the flexibility in the UK labour market has brought long term investment into the country or that indigenous employers are prepared to increase investment other than those in areas where there is a guaranteed, quick return. 14. Our own research has shown that despite statistics showing progress towards full employment this has hidden the serious decline in manufacturing jobs over the past 15 years. The shifts in the labour market in the UK towards the service sectors has brought with it a diminishing supply of key skills which impacts upon the attractiveness of the UK to inward investors.

Employment Regulation 15. Conversely there is no real evidence to suggest that employment regulation where it has been introduced has a detrimental eVect on investment and jobs. This is due, in part, to the extent to which positive rights for workers are integrated into UK employment legislation by the Government. 16. Amicus notes that many of the positive developments in employee rights in the UK have originated from European legislation and directives. Amicus would like to see a more positive approach from the UK Government when such directives are proposed and consulted upon. We welcome the earlier opportunity for consultation which the DTI now provides to interested parties, but are concerned that the outcomes to date have represented a dilution of the intent of such directives. This is apparent in the Working Time Regulations where the UK has continued to argue for the retention of the opt out clause, and the Information and Consultation Regulations where many employers will be excluded from the requirements. 3013721001 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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17. There is no evidence from those countries where existing consultation rights meet the new regulation requirements or where there is no opt out from the working time regulations that investment has been undermined or productivity has suVered. 18. It is important that positive changes that will create the right sort of working environment to encourage the acceptance of change, so necessary to today’s economic climate, are introduced with enthusiasm by industry’s partners if the UK economy is to meet the aspirations of government in terms of productivity and competitiveness.

ASkilled Workforce 19. There is a general recognition that for the UK to compete in the global economy in manufacturing and commercial services, it needs to create a balanced workforce with the capability to adapt to change through training and re-skilling. Such an approach needs the right sort of workplace and employment environment. 20. If on the basis of the false premise that the UK is over-regulated, government restricts the ability of trade unions to organise or play a full role in business strategy through consultation, it is unlikely to create the environment where change is seen as an opportunity rather than a threat. 21. Amicus argues that the record of the UK employers demonstrates that there is a need for the provision of mandatory training levies where industries fail to demonstrate that they are investing in the future through a strategic training plan. 22. It is against this scenario that Amicus argues that there is no question that the UK workforce can or should seek to compete with low wage economies on the basis of low wages and less regulation. Such an approach would be disastrous and seriously damage the UK economy in the medium and long term. A programme of sustained investment, innovation and high-skill, added value workplaces is the sustainable approach for UK employment and the proposal for a level playing field by expanding regulations on a par with the rest of Europe, provides no real obstacle to such a strategy, or to flexibility. June 2004

APPENDIX 2

Memorandum by the British Chambers of Commerce The British Chambers of Commerce represents, through a quality assured national network of Accredited Chambers of Commerce, more than 135,000 UK businesses in all sectors of the economy, and of all sizes. Accredited Chambers seek to represent the interests and support the competitiveness and growth of all businesses in their communities and regions.

Executive Summary The BCC’s response to the Committee includes employment regulatory costs, working time regulations, national minimum wage, work life balance, temporary agency workers, discrimination and the availability of a skilled workforce. The key points are: — The BCC Burdens Barometer found that the total cost of Regulation since 1998 to be £30 billion of which £12.68 billion is from employment regulations. The total cost of employment regulations in the last year has increased by 21%. Our research has shown that for all 165 Regulatory Impact Assessments (RIAs) published in 2002–03 the costs of regulations were rising whilst the benefits were declining. This trend results from the fact that Ministers continue to sign RIAs certifying that the “benefits justify the costs” when, in the majority of cases, no evidence is presented that this is the case. This practice is in direct contravention of the Cabinet OYce guidelines on the preparation of RIAs. — The Working Time Regulations are the largest cost to business at £11.1 billion since being introduced in 1999. The opt-out from the maximum 48 hour working week is valued by employers and employees. Losing the opt-out would add further regulatory costs to business and would also undermine the flexibility of the labour market. The BCC strongly support retaining the opt-out. — The BCC supports in principle the minimum wage, which was introduced through the National Minimum Wage (NMW) Regulations 1999. However, the NMW presents two potential dangers. Firstly, if the NMW continues to rise at the rate it has over the last five years, (this year by just under 8%) it could lead to businesses having to cut costs. The BCC therefore recommends that the NMW be capped in line with inflation. Secondly, the new NMW for 16–17 year olds could harm the flow of skilled workers into the economy. The BCC therefore recommends that the exclusions from workbased learning should remain but also that the rate of £3 should also be capped to prevent adding further incentives for young people to leave education or training. 3013721002 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— The light-touch approach to flexible working has been a success over the last year. Flexible working benefits businesses by encouraging higher levels of productivity and increasing staV retention. The success of the light touch approach negates the need for further regulations. The Government must honour the commitment it made not to review the Regulations until 2006. — The UK has more temporary workers than any other EU state, over 700,000. Therefore full parity of benefits and conditions between temporary and permanent workers would raise the cost of hiring temporary staV, making them a much less attractive prospect for employers, and leading to fewer employment opportunities. The BCC therefore recommends that the current proposal for a 6 week exclusion period within the Temporary Agency Workers Directive should be extended to a 6 month period. — It is essential that a common sense approach be taken with the Age Discrimination legislation and that the end point of the employer/employee relationship defined. Therefore, a mandatory state retirement age must be included in the proposals. Further, the costs to SMEs must be more closely analysed as the current RIA does not provide accurate estimates. — The UK currently suVers from an acute skills shortage which is a barrier to raising productivity and competitiveness. The problem is that not enough people pursue vocational routes of learning and too many young people are encouraged to pursue academic routes when it is not in their interests or the interests of the economy to do so. The Government must fully incorporate vocational routes throughout the national curriculum.

Introduction 1. The British Chambers of Commerce (BCC) welcomes the opportunity to respond to the Trade and Industry Committee’s investigation into UK employment regulations and the contribution labour market flexibility makes to the economy. The BCC’s response is divided into the following sections: — Total costs of employment regulations. — Working Time Directive: Impact on labour market flexibility. — National Minimum Wage and introduction of new 16–17 year old Minimum Wage. — Work Life Balance. — Temporary Agency Workers. — Age Discrimination. — Availability of a skilled workforce. — Recommendations to the Government.

Cost of Employment Regulations 2. The burden of regulation continues to be of great concern to UK businesses as it represents a significant factor in the erosion of our competitive advantage. The BCC Burdens Barometer1 lists the total cost of regulations introduced on business since 1998 through calculating the Regulatory Impact Assessments (RIAs) produced by Government departments. The latest Burdens Barometer (2004) found the total cost of regulations introduced from 1998 until July 2004 to be £30 billion. This figure excludes the cost to business of the National Minimum Wage Regulations 1999 and subsequent amendments to the rate estimated in the RIAs to have cost £13.5 billion. 3. Analysis of our Burdens Barometer reveals that out of the total £30 billion in extra regulation, £12.68 billion is resultant from employment regulations. The most costly employment regulation has been the Working Time Regulations 1999 costing £11 billion since its implementation. The most recent additional cost has been the Flexible Working (Procedural Requirements) Regulations in April 2003 which have cost £404 million. Other significant employment regulatory costs have included the Employment Act 2002 costing £565 million, Employment Relations Bill 2000 costing £215 million, Part Time Workers (Prevention of Less Favorable Treatment) Regulations 2000 costing £112 million, Maternity and Paternity Leave (Amendment) Regulations costing £64 million, and the Transnational Information and Consultation of Employees Regulations 1999 (European Work Councils) costing £72 million. 4. The cost of employment regulation is continuing to increase. In 2002–03 the total cost of employment regulation introduced since 1998 was £10.5 billion. However, in the last year the total cost of employment regulations has risen by 21% to £12.68 billion. The largest proportion of this increases comes from the Employment Act 2002 and Flexible Working Regulations which have added £969 million. 5. The key to eVectively lightening the regulatory load on business is to address the heart of the problem. In our report “Do regulators play by the rules? An audit of the Government’s Regulatory Impact Assessment System”2 we found little evidence that RIAs have caused legislation to be aborted. Our research

1 BCC Burden Barometer 2004. 2 British Chambers of Commerce, February 2003. 3013721002 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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has shown that for all 165 RIAs published in 2002–03 the cost of regulations were rising whilst the benefits were declining. This trend directly contravenes the Cabinet OYce’s own guidelines which state that the “benefits must justify the costs.” 6. In our study last year of the period since RIAs were formally introduced, we found only 11 cases where RIAs have caused legislation to be aborted. However, this may be because the Regulatory Impact Unit web- site only lists Final RIAs and there is have no way of tracking initial and partial RIAs that were subsequently withdrawn. The option of not regulating appears to have been considered in only 11% of the analysed RIAs and less than half of the RIAs (44%) quantify all the options considered. The rest provide cost/benefit analysis for the preferred option only (31%) or no quantification at all (24%). This makes the decision to adopt, amend or reject a regulation biased and greatly reduces the usefulness of the system.

Working Time Directive:Impact on Labour Market Flexibility 7. The European Commission is presently reviewing the Working Time Directive and more specifically the UK opt-out from the maximum 48 hour working week. The BCC has consulted our entire membership on this issue and we strongly support the UK retaining the use of the opt-out from the 48 hours maximum working week. Business needs a flexible economic environment to maximise productivity and profitability. A central ingredient to this environment is a flexible labour market. Restrictions on working hours would serve to erode the flexibility of the labour market. 8. The BCC believes that the availability of an opt-out from the 48 hour maximum working week is extremely beneficial to employers and employees. A large proportion of the BCC’s membership consists of small and medium size businesses. Losing the opt-out will place restrictions on labour market flexibility and will lead to operational diYculties, particularly for small businesses. A recent BCC Survey found that 90% of employers currently make use of the opt-out.3 The BCC believes that if an employee chooses of his own free will to work longer hours and is appropriately rewarded for doing so, that the employee should be free to do so. 9. The opt-out allows businesses to deal with fluctuations in customer demand. The value of such flexibility is illustrated by a BCC member in response to our survey.4 A security provider with 32 employees said that: “We have scheduled engineering work during normal hours, but can not dictate the volume of emergencies that we receive requiring emergency attendance and repairs. Therefore our engineers have to remain flexible in the hours they work, through their own choice. We do not have the resources or cash to cope without employees signing the opt-out.” 10. Employees value the opt-out because a forced reduction in working hours would result in lower earnings and lower living standards. The freedom to choose how long they work is important. For example, one BCC member who runs a design company with 15 employees said: “StaV who work more than 48 hours do so because they want to for whatever reason, and financial is the main one. Removing the opt-out would mean staV would work the contractual hours with us and work several other jobs elsewhere.” Another member who runs a food warehousing company with 40 employees says, “many employees rely heavily on overtime as normal pay to live how they want. They would see the taking away of this choice as detrimental.” 11. An example from our survey illustrates the importance of flexibility to deal with seasonal peaks. An employer of a manufacturing business with 2,300 catalogued products said that “May until September are historically busy months for our manufacturing business. We do not know with great definition the mix of orders to come for that period. Our employees look forward to it as a short term defined period of hard work to earn extra money.”

National Minimum Wage (NMW)

12. The BCC are not against the minimum wage which was introduced under the National Minimum Wage Regulations 1999. Employers should fairly remunerate their employees. However, the successive yearly increases of the minimum wage above the rate of inflation and national average earnings are not sustainable and could start to have an impact on employment levels. This regulation has cost £13.5 billion. Further, the forthcoming introduction of a 16–17 years old minimum wage will add further costs and have a detrimental impact on the flexibility of the labour market.

3 BCC Online Survey, 2004. 4 BCC Online Survey, 2004. 3013721003 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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13. When the NMW was introduced in 1999, it was set at a reasonable rate. However, since 1999 the NMW for over 21 years old has increased from £3.60 an hour to £4.50 and is set to increase in October to £4.85. The rate for 18–21 year olds has also increased from £3 to £3.80 in October, is also set to rise again to £4.10 in October. 14. This year alone the NMW for over 21 year olds has increased by 7.7% and the rate for 18–21 year olds has increased this year by 7.9%. Inflation is currently 1.4% and the annual average earnings increase rate is 3.4%. Therefore the increases this year in the NMW rates are over five times the rate of inflation and over twice the rate of the increase in average earnings. These large percentage increases this year together with a 25% increase in the rates over the previous four years have resulted in a reasonable rate becoming increasingly unmanageable for business. The continual increases are not sustainable and the Government must cap the rate of the increase. 15. The rate of £3 for the new 16–17 year old NMW is set at a reasonable rate. However, the increases over the last five years in the other two NMW rates suggests that this rate will be over £4 in the coming years. Further, the BCC is concerned about the potential impact of the new 16–17 year old NMW on the flow of skilled workers into the labour market. In a ranking of the number of 17 year olds remaining in education or training, the OECD have ranked the UK 25th out of 29 countries. The prospect of earning higher salaries at 16–17 years old will act as incentive for young people to leave education or training and enter employment. This is not in the interest of young people or the economy as a whole. A highly skilled workforce is the foundation of a competitive and productive economy. 16. The Government have consistently stated that their central priority for young people is to ensure that they acquire the skills necessary for them to progress successfully through their working life and acquire the skills which reflect employers’ needs. The 16–17 year old NMW would serve to undermine the Government’s urgent drive to increase the skills of young people through the Skills Strategy and the Review of 14–19 year olds education. 17. However, the BCC welcomes confirmation from the Government that the 16–17 year old NMW will not apply to employers who have young people undertaking workbased training. If this wage rate had applied to this group employers would have cut the number of young people on workbased learning who currently earn approximately £50 per week whilst on their training. Therefore although the new NMW will act as a disincentive to young people from staying on in education or training it will not act as a disincentive to employers who are training young people. 18. The NMW therefore present two potential dangers. Firstly, if the NMW continues to rise at the rate it has over the last five years, this could force businesses to cut costs. The result will be either cutting operational costs by for example, cutting the number of employees or by passing costs to consumers and thereby undermining competitiveness. The BCC recommends that the NMW for 18–21 year olds and for over 21 year olds be capped in line with inflation. 19. Secondly, the NMW for 16–17 year olds could harm the flow of skilled workers into the economy. The BCC therefore recommends that the exclusions from workbased learning should remain but also the rate of £3 should also be capped to prevent adding further incentives for young people to leave education or training.

Work Life Balance 20. The light-touch approach to flexible working has been a success over the last year. Flexible working benefits business by encouraging higher levels of productivity and increasing staV retention. Encouraging employers to think creatively about how their employees can work flexibly is a better approach than burdening them with more rules and regulations. The Flexible Working Regulations 2002 which came into force in April 2003 have cost £404 million. It is crucial that the right to request flexible working is kept as informal as possible so that additional cost are not placed on employers. 21. Research conducted by the OYce for National Statistics found that, in its first year of operation, almost one million mothers and fathers have requested flexible work, with 77% of companies automatically agreeing new terms, and a further 9% reaching some sort of compromise. 22. The current light touch approach has been successful and therefore the BCC would not support adding to the current Regulations. The Government must honour the commitment it made not to review the Regulations until 2006.

Temporary Agency Workers 23. The UK’s labour market has diVerent characteristics from other EU member states, consequently the Directive’s provisions would have a very diVerent eVect in the UK. The UK has more temporary workers than any other EU state, over 700,000 at any one time, or about 3% of the workforce. Full parity of benefits and conditions between temporary and permanent workers would raise the cost of hiring temporary staV, making them a much less attractive prospect for employers, and leading to fewer employment opportunities for workers who want flexible working arrangements. 3013721003 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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24. Equal treatment regarding pay and working conditions for temporary workers would also put substantial additional administrative burdens on user enterprises (particularly SMEs). Additionally, small firms with no dedicated human resource expertise would be concerned that if they get it wrong on equal treatment for temporary workers they could be taken to tribunal. This would further discourage user firms from recruiting temporary labour and reduce employment opportunities for temporary workers, which at present could possibly lead to permanent work. 25. The BCC, along with the Government and other representative bodies, have consistently argued that the proposed Directive could backfire against those it is intended to help by reducing temporary employment opportunities. Currently the legislation includes a six week period before a temporary worker is entitled to the same benefits as a full time employee. The BCC is lobbying for a six month period.

Age Discrimination

26. The UK has the third highest participation rate in the EU of both older workers and younger workers. The UK’s strong record is a result of the flexibility of the UK labour market. The main concern for business in the current proposals is the plan to abolish Normal Retirement Ages (NRAs). The BCC believes it is necessary and beneficial to set an end point to the employment relationship. 27. The BCC is concerned about the financial impact on SMEs of this Directive. The RIA stated that there is likely to be a significant eVect on smaller firms (those with fewer than 50 employees). The RIA reports that small firms will “bear disproportionate implementation costs, which are expected to be relatively high because of the complex nature of the subject.” The BCC is concerned with the reliability of the Government’s calculations and more precise figures are needed. Indeed, the RIA states with reference to the costs and benefits that “some of the assumptions will be pure guess work” and with reference to the numbers likely to be aVected that there “are at present no reliable statistics.” There are currently 1.14 million small employers. Implementation of the proposals is estimated to cost small firms between £120 million and £140 million overall. (Total implementation costs are estimated at £141–£155 million.) 28. Amongst the recurring costs, Employment Tribunal costs are estimated to be about £16–£32 million, with each individual application costing the employer £2,000. It is estimated that employers could be faced with an extra £73 billion worth of claims and 8,000 extra cases a year from this legislation, a fifth of which related to retirement issues.

Availability of a Skilled Workforce

29. The availability of skilled workers is fundamental to the strength of the economy. However, the UK has been suVering from acute skills shortages. The BCC Productivity Survey found that 36.4% of businesses cited skills shortage as a barrier to raising productivity. The UK productivity rate is 25% below the US and France, primarily because of the current skills shortages. OECD figures show that the UK has slipped from 13th to 22nd in a table ranking the numbers leaving education with poor qualification and 25th out of 29th in a table ranking the numbers staying on in education or training. Further, a recent Learning and Skills Council survey5 found that one fifth of job vacancies in the UK remain unfilled because of a lack of skilled applicants and more than a third of firms are delaying new projects because they could not find the right people. 30. In a recent BCC survey6 one respondent illustrated the impact of skills shortages by commenting “. . . we operate in a low unemployment area with few skilled workers. Therefore we must rely on those that work for us to be flexible. We have no other people left to employ in the area.” 31. To improve the supply of skilled labour into the workforce the BCC have various long term recommendations:7 — The Government must shift the focus of its education policy toward vocational education. Vocational routes of learning must be present as equal to academic. — There should not be a target for university participation. Those who can benefit from a university education should go to university. However, currently there are high drop out rates and declining numbers entering graduate level jobs. — The Government must ensure that young people entering the workplace have basic literacy/ numeracy/IT and communication skills.

5 UK Learning and Skills Council Survey 2004. 6 BCC Survey on Working Time Directive 2004. 7 For more detail on BCC skills recommendations please contact Lewis Sidnick, BCC Policy Adviser. 3013721003 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Recommendations 32. Monitor and reduce Regulatory Burden: To help monitor and reduce the regulatory burden on business from employment regulations we would recommend that the Government adopt the BCC’s database of RIAs as the standard RIA reference point nationally for all government departments. The Government should incentivise departments to carry out genuine consultations when compiling a RIA and submit the consultation process to independent scrutiny. There should be measurable targets set for each government department for the reduction of compliance costs to business through deregulation and the introduction of government departmental budgets for every new regulation introduced. Ministers should only sign RIAs where there is rigorous evidence that the benefits justify the costs. 33. Retain the Opt-Out from Working Time Regulations: The BCC strongly support the retaining of the opt-out from the 48 hour working week as this opt-out is an important ingredient to our labour market flexibility. Employers value the opt-out because it enables them to keep costs down (both directly through having to employ more people and indirectly through finding space to put them, for example); because they wish to avoid industrial disputes over the interpretation of the regulations; because many do not have the infrastructure in place to make collective or workforce agreements in order to make the reference period more flexible; and because the definition of autonomous workers in the UK statutory instrument is unclear. 34. Cap the National Minimum Wage and retain the training exclusions. The NMW has increased from £3.60 to £4.85 since 1999. The BCC recommends that the NMW be capped in line with inflation. The new NMW for 16–17 year olds could harm the flow of skilled workers into the economy. The BCC therefore recommends that the exclusions from workbased learning should remain but also the rate of £3 should be capped to prevent adding further incentives for young people to leave education or training. 35. Do not legislate to strengthen flexible working regulations. The Flexible Working Regulations 2002 have been a success. Therefore there is no necessity to add to the current Regulations, which only came into force a year ago. Further, the Government stated that no review would occur within the first three years. 36. Extend the current six week exclusion period of the Temporary Agency Workers Directive to a six month period. The UK has more temporary workers than any other EU state, with over 700,000. Therefore full parity of benefits and conditions between temporary and permanent workers would raise the cost of hiring temporary staV, making them a much less attractive prospect for employers, and leading to fewer employment opportunities. 37. Include a mandatory state retirement age within the Age Discrimination Legislation. It is essential that a common sense approach be taken and that the end point of the employer/employee relationship defined. Therefore, a mandatory state retirement age must be included in the proposals. 38. Place greater focus on vocational learning to address current skills shortages. The UK currently suVers from a critical skills shortage which is a barrier against raising productivity and competitiveness. The problem is that not enough people pursue vocational routes of learning and too many young people are encouraged to pursue academic routes when it is not in their interests or the interests of the economy. The Government must fully incorporate vocational route through the national curriculum. June 2004

APPENDIX 3

Memorandum by the Chartered Institute of Personnel and Development The Chartered Institute of Personnel and Development (CIPD) has over 120,000 members and is the leading professional institute for those involved in the management and development of people. This memorandum sets out the CIPD’s view on how best to promote labour market flexibility in the UK. Section 1 defines what flexibility means for the economy. Section 2 looks at flexibility from an organisational or workplace perspective. Section 3 considers the role of employment regulation, while sections 4 and 5 discuss the impact of regulation on employment and productivity respectively. In concluding, section 6 makes some recommendations regarding employment regulation.

1. Labour Market Flexibility: the Economic Perspective 1.1 According to the Treasury, “A flexible and eYcient labour market has the ability to adjust to changing economic conditions in a way that maintains high employment, low inflation and unemployment, and continued growth in real incomes.” (HM Treasury, Flexibility in the UK Economy, March 2004) 1.2 This is a rather general definition. In more specific terms, a flexible labour market will: — enable the economy to maintain a high degree of employment stability over the economic cycle; — help sustain a low rate of structural joblessness (“full employment”); and — raise the trend rate of productivity growth. 3013721004 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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1.3 The flexibility that gives rise to these outcomes has a number of well-known dimensions: — real wage flexibility (the ease with which earnings adjust to fluctuations in aggregate demand for labour); — relative wage flexibility (the ease with which the earnings of diVerent types of labour adjust to structural shifts in the economy); — numerical flexibility (the ease with which employers can adjust labour inputs—people or hours worked—in response to changes in demand); — functional flexibility (the ease with which labour can be redeployed to new tasks, or are able to adapt to change, in response to changes in demand and improvements in technology); — occupational flexibility (or occupational mobility, the ease with which workers can switch from one occupation to another in response to changes in demand); and — spatial flexibility (or geographical mobility, the ease with which labour can move from area to area in response to structural shifts in demand). 1.4 Labour market flexibility is sometimes considered in relation to each of these dimensions in isolation but is best thought of in terms of the manner in which they combine and interact. This is important for two reasons. 1.5 First, there may be trade-oVs between diVerent dimensions of flexibility. For example, a high degree of numerical flexibility expressed in terms of frequent hiring and firing and rapid labour turnover can, by its impact on the propensity of employers to invest in training, detract from functional flexibility. Secondly, some forms of flexibility can give rise to wider economic and social costs, which will alter the perception of how well the labour market adjusts to change. A society that values job stability, for example, may prefer a labour market where real wages or hours of work, rather than employment levels, respond to fluctuations in demand over the economic cycle. 1.6 This implies that to be truly deemed “flexible”, the labour market should be exhibiting strong, or at least improving, performance on stability, full employment and productivity. The general consensus amongst economists is that the UK labour market scores well on numerical flexibility and relative wage flexibility, has been showing signs of improvement on real wage flexibility (aided by improvements in monetary policy and the impact this has had on inflation expectations), but has performed less well on functional flexibility. This observation is consistent both with the economy’s relatively strong employment performance in the past decade and continued relatively low productivity by the standards of the United States, France and Germany. It also suggests that the common assertion that “the UK has a flexible labour market” should therefore be treated with caution. This in part explains why the Treasury in 2003 concluded that the UK economy had not yet met the flexibility test for membership of the single European currency.

2. Labour Market Flexibility: the Organisational Perspective

2.1 At the level of the organisation or workplace, “flexibility” is best thought of as the ease with which managers are able to respond to market pressures as they strive to meet the demands of their customers or clients. Managers will pursue their objectives in diVerent ways and with varying degrees of success. But high performing organisations are found to be those that score highly across the following flexible dimensions of human resource management: — flexible management of working time to ensure that they provide customers with what they want when they want it—which in today’s “24/7 society” can be any time of day or night; — ongoing investment to provide staV with the ability to move easily between diVerent tasks, adjust to new technologies, and adapt to new working practices. This involves widespread use of team based working, giving staV the opportunity to exercise discretion on the job, and allowing staV to eVectively voice their opinions on how to improve performance; — reward systems that vary pay in line with individual or team performance, as well as fluctuations in labour market conditions; and — performance measurement and appraisal systems that motivate staV to perform well and encourage management to treat staV as valuable assets to be developed rather than simply as “labour costs” to be minimised. 2.2 As with labour market flexibility viewed from the macroeconomic perspective, some organisations will score highly on some of these dimensions but not others, and possibly encounter trade-oVs between diVerent management practices. Successful organisations are those that find a balance across the various dimensions of flexibility in a way that enables them to eVectively supply what customers and clients want. 3013721004 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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3. Employment Regulation and Labour Market Flexibility 3.1 The preceding discussion indicates that there is a prima facie case for public policy interventions designed to improve UK labour market flexibility, especially in respect of functional flexibility. 3.2 Since policy interventions are targeted at, and mediated through, organisations there are obvious implications for management. The default response of many employers’ organisations—and the CIPD—is that government should intervene as little as possible since organisations are better judges of how best to manage their people than politicians or bureaucrats. On this view policy-makers should thus limit their interventions to persuading or exhorting organisations to raise their game, assisted by technical support, guidance or voluntary codes of practice. 3.3 Despite a general preference for voluntarism, the CIPD accepts that market failures, poor practice or bad practice, sometimes provides a justification for more direct forms of government intervention, ranging from financial sticks and carrots to statutory employment regulation. 3.4 Indirect measures to foster flexibility include government policies for education and training that, by increasing the supply of basic and technical skills in the workforce, can make it easier for organisations to adopt high performance work strategies. Similarly, improving the quality of management education and training makes it more likely that organisations will develop the leadership capacity needed to deliver high performance. 3.5 However, recognition of the limits of voluntarism and the case for policy intervention does not provide justification for strong employment regulation. Most organisations act in the best interests of those they employ. Moreover, as the Treasury acknowledges, regulation carries potential costs as well as potential benefits: “EVective and well focused regulation can play a vital role in correcting market failures, ensuring health and safety and good working practices, and in driving up standards. However, unnecessary or poorly designed regulation can be an obstacle to flexibility restricting employment growth and competitiveness, particularly for smaller firms.” (HM Treasury, 2004, op cit)

4. Employment Regulation and Jobs 4.1 The potential cost of employment regulation, insofar as it hinders labour market flexibility, is said to emerge in the form of lower employment and/or slower productivity growth than would otherwise be achieved. However, care should be taken when assessing these possible eVects, particularly in relation to the argument that employment regulation amounts to a “tax on jobs”. 4.2 The regulation with the greatest potential to harm jobs is the national minimum wage. But the sensible advice of the independent Low Pay Commission has ensured that the minimum pay rate so far set has had no discernible negative eVect on employment levels. As a result, the bulk of employers seem most concerned about the combined cost of new regulations covering working time, parental leave and the rights of part- time and temporary/agency workers. Yet while these costs notionally fall on employers they in fact fall on workers. Over time wages adjust downward to compensate for any increased employment costs caused by regulation. In other words, workers themselves pay for their improved employment rights. Consequently there is little or no long-run negative impact on jobs. 4.3 This point has been stressed by, among others, Prof Steven Nickell, one of the UK’s most respected economists and a member of the Bank of England’s Monetary Policy Committee. As Professor Nickell concludes in a study published by the Bank: “The workings of the labour market ensure that employees end up paying for their new benefits (rights) in the form of lower wages, a fact which is worth bearing in mind by those who press for further extensions of employee rights. They might consider asking employees whether they want to sacrifice wages in order to have new rights. Typically, however, employees and others usually have the impression that the costs of their new rights will be paid for out of profits, an impression reinforced because managers also like to claim this as well.” (Nickell, S and Quintini, G “The recent performance of the UK labour market”, August 2001.

5. Employment Regulation and Productivity 5.1 If employment regulation does not impose a “tax on jobs” why do so many employers complain? The answer is that regulation tends to be introduced with such speed, or in such a bureaucratic fashion, that organisations struggle to cope. 5.2 This has obvious implications for productivity where excessive form filling can seriously detract from everyday business activities. A proportion of management time is inevitably tied-up in understanding the law and implementing regulations. Three-quarters of HR practitioners involved in the CIPD’s 2002 employment law survey complained of a lack of adequate consultation about forthcoming regulations, three-quarters of a lack of clarity in the law, and half wanted to be issued with more guidance. Larger employers are thus increasingly hiring staV skilled in employment law, while smaller employers struggle to cope at all. 3013721004 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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5.3 Regulation can also hinder functional flexibility by fostering a tick box or compliance culture; the need to fulfil regulatory rules stifling organisational creativity. Half of all HR practitioners questioned for the CIPD employment law survey referred to above thought that the law hindered the ability of their organisations to meet strategic objectives. 5.4 Ironically, there is also a risk that regulation will have unintended adverse consequences for those it is designed to help. One possibility is that the tick box mentality will result in organisations feeling that they have “done their bit” for workers simply by meeting their legal requirement. Similarly, narrowly constructed regulations that impose one-size-fits-all requirements on organisations may result in some employers having to abandon perfectly reasonable practices that suit them and their workers. 5.5 This is evident from controversy surrounding two EU directives, the Information and Consultation Directive—due to be implemented in the UK by March 2005—and the Working Time Directive. 5.6 Regulation to require employers to inform and consult workers about plans for restructuring could in principle help improve productivity—which is why the UK Government published its initial thoughts on the EU directive in a document entitled High Performance Workplaces. (DTI, High Performance Workplaces: the role of employee involvement in a modern economy’ July 2002). However, there are also potential costs in the form of reduced productivity that should not be overlooked. 5.7 The aim of the directive is to require organisations with 50 or more employees to inform and consult with representative employee bodies. It is important not only that the latter prove to be genuinely representative but also that they don’t run counter to direct communication between managers and workers, such as regular team meetings and employee attitude surveys. Organisations have been making ever greater use of such direct forms of communication—in some cases allying this to partnership agreements with trade unions—in order to increase employee motivation, commitment and trust. Any diminution of direct communication caused by a regulatory requirement to consult representative employee bodies could therefore hinder rather than help eVorts to raise productivity and thus oVset the potential benefits of the directive. 5.8 By the same token, while there is merit in the Working Time Directive insofar as it ensures that that organisations do not require people to work excessively long hours against their will, the directive should aim to do no more than act as a guideline to encourage voluntary changes in the behaviour of employers and workers. The current threat to remove the right of workers to voluntarily opt out from the terms of the directive could, if carried through, harm numerical labour market flexibility in the UK. 5.9 The flexible working regulations introduced in April 2003, however, are an example of legislation designed to operate with a “light touch”. They were introduced after extensive consultation with a wide range of interests, including a task force with an independent chair, and this process made it possible to adopt an imaginative but practical solution to balancing the interests of employer and employee. The regulations assume in eVect that employers will be willing to give serious consideration to an employee’s request for flexible working, taking into account the organisation’s ability to accommodate it. Survey evidence suggests that most employers are in practice taking a positive approach to the regulations and accepting a high proportion of requests, either as made or in modified form. Few employers report serious costs or diYculties in implementing the regulations (CIPD, A Parent’s Right to Ask, 2003). 5.10 A light touch approach to regulation is based on the fundamental proposition that, in order to have positive benefits for both employees and business, the regulation has to be implemented with this specific aim. If employers simply aim for compliance, this may protect them from legal penalty but is unlikely to bring positive benefits. So eVective regulation has to target employers’ hearts and minds. The business case for policies on equal opportunities, for example, assumes that the employer will recruit from a wider range of applicants but the real benefits will only accrue if the organisation redesigns its recruitment processes, which is not of course required by legislation. 5.11 An example of legislation whose implementation would be highly damaging to labour market flexibility is the draft EU directive on agency working. The directive would require employers to give agency workers the same terms and conditions as those of employees doing similar work. In many cases eg nurses employed by nurse-banks, this would lead to agency workers receiving lower pay than at present. More generally, by raising the costs of agency working the directive would make this form of work less attractive to both employers and employees. Research evidence from a number of countries shows that agency working is a route used by many disadvantaged groups to gain access to permanent jobs.

6. Conclusion and Recommendations 6.1 The assessment contained in this memorandum suggests that employment regulation is neither inherently good nor bad but needs to be assessed in relation to specific labour market issues. 6.2 If employment regulation is to help rather than hinder labour market flexibility the government should adopt as light a touch as possible in order to meet its regulatory objectives. Minimum standards plus leeway for organisations to suit regulations to their individual circumstances should be the order of the day. It is also vital that policy-makers do everything possible to combat the tick box mentality so as to ensure that any employment regulation is a platform for better treatment of people at work rather than merely a plateau. 3013721004 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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6.3 With regard to future practices the CIPD recommends that any proposed item of regulation should demonstrate that: — it is both appropriate and proportionate to meeting its objectives; — there is no reasonable non-statutory alternative to meeting its objectives; — there is suYcient scope to allow organisations to tailor the regulation to their individual circumstances; — all the potential costs and benefits have been identified and, as far as possible, quantified; — opportunities have been taken to support the use of alternative dispute resolution processes, such as conciliation and mediation, before applications are referred to employment tribunals; and — regulations are designed so that employers are encouraged to use them as a means of improving performance, and suitable guidance is made available for this purpose. June 2004

APPENDIX 4

Memorandum by Citizens Advice

Introduction 1. This paper sets out the submission by Citizens Advice to the inquiry by the Trade and Industry Committee into UK Employment Regulation, as announced on 7 May 2004. 2. Citizens Advice is the co-ordinating body for the 530 Citizens Advice Bureaux (CABx) in England, Wales and Northern Ireland.8 As well as setting and monitoring standards for advice, training, equal opportunities and accessibility, Citizens Advice co-ordinates national social policy, media and parliamentary work. 3. In 2002–03, these 530 CABx dealt with 560,153 employment-related advice enquiries. Whilst a significant number of these advice enquiries were made by employers, the vast majority were made by workers. And we estimate that in at least 60% of these cases the worker concerned was not receiving—or was being deliberately denied—one or more of his or her statutory workplace rights. Typically, he or she was low skilled and low paid, and working in a small, non-unionised workplace (or was previously so engaged, prior to the dismissal that led him or her to seek advice from the CAB). 4. Early in the life of the current Government, the then Secretary of State for Trade and Industry said: “in a modern economy, we need a flexible labour market. In return, employers have a responsibility to give their workers the flexibility they need. Flexibility to balance work, family and other commitments”.9 Citizens Advice has no remit to comment on the stated “need” for a flexible labour market. The focus of this submission is on how the Government’s strategy for making a reality of the second part of this statement— that is, of ensuring “work-life” balance for all, through the establishment of “a framework of decent workplace standards”—is failing to benefit many of the hundreds of thousands of low paid, non-unionised workers in care homes, hairdressers, bars, restaurants and hotels, shops, food processing factories, cleaning companies, and other low-skilled or “service” jobs in which, according to many economic analysts, there is likely to be further significant growth in coming years.10

The Problem 5. As noted above, CABx deal with some 550,000 employment-related advice enquiries every year. Some of these enquiries—made by both workers and employers—relate to the company mergers and other business changes that are inevitable in a dynamic economy operating under the influences of “globalisation” and new technologies. Others reflect the fact that disagreements between workers and their employers will and do happen, just as they do in other areas of life. But an estimated 60% or more of the worker enquiries are made by a worker who is not receiving—or is being deliberately denied—one or more of his or her statutory workplace rights. — Tens of thousands are not receiving their full legal entitlement to four weeks’ paid holiday per year, and/or have been forced or cajoled into “opting out” of the 48-hour limit on weekly working time. — Many have been engaged on successive short, fixed-term contracts as a means of denying them continuity of employment—and thus other basic rights, such as legal protection from unfair dismissal.

8 CABx in Scotland belong to a separate organisation, Citizens Advice Scotland (CAS). 9 The Rt Hon Stephen Byers, MP: speech to the Scottish TUC conference, 20 April 2000. 10 See, for example: Turner, A. (2002) “Globalisation, technology and the service economy: implications for job creation”, in Burkitt, N. (ed) A life’s work: achieving full and fulfilling employment, Institute for Public Policy Research, 2002. 3013721005 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— Tens of thousands of pregnant women have been denied time oV for ante-natal care, or are experiencing diYculty in obtaining their full legal entitlement to maternity leave and pay. And a depressingly large number have been unfairly dismissed simply on account of their condition. — Many have been denied Statutory Sick Pay when forced to take time oV due to illness. — Most have not received a written statement of their terms and conditions, and/or regular, itemised pay slips. This simply increases the diYculty they face in ensuring that their pay, terms and conditions are in accordance with their statutory rights. 6. These workers tend to have a poor understanding of their statutory rights, and little if any awareness of how to assert or enforce them. Most are low skilled and low paid, and are employed in small, non-unionised workplaces.11 As a result, they are extremely vulnerable both to deliberate and malevolent abuse by a “rogue” or criminally exploitative employer, and to inadvertent non-compliance by a well-intentioned but overstretched or inadequately informed employer. 7. Many small employers, especially those in low-profitability sectors of the economy, simply lack the means and resources—dedicated human resources staV, for example—to keep fully abreast of their legal obligations to their workforce. Research commissioned by the DTI confirms that most small employers are “not confident about their knowledge of individual employment rights”, due both to the common lack of “an in-house personnel function” and to the fact that many such employers deal with employment rights on “a need-to-know basis” only.12 In short, the demands of running a small business in an increasingly competitive economic environment all too often lead to inadvertent non-compliance with statutory employment rights. 8. It is also clear that, in the words of the General Secretary of the TUC, Brendan Barber, “there are still too many bad employers who exploit their workers and oVer the worst pay and conditions they can get away with”.13 To many of these (mostly small) employers, the basic statutory rights of their workers are simply constraints on “flexibility”. Such malevolent non-compliance may well be the exception rather than the rule, but the number of workers aVected is substantial. And the power of the market place can all too easily lead to a rapid downward spiral of wages, conditions, and workplace safety. This is especially true when the workers concerned are migrants—as the tragic deaths of 21 Chinese cockle-pickers in Morecambe Bay in February 2004 so dramatically illustrated.14 9. But it is not only workers who are losing out from this situation. Good employers lose out if their competitiveness is undercut by the bad, and especially so if “rogue” competitors can exploit their workers with impunity. As the former Cabinet minister, Nick Brown MP, has noted, “there is nothing more galling for an honest employer than finding that they are being undercut by others who are not obeying the law and, worse, finding that the law is not being enforced”.15 Focus groups of small businesses convened by MORI for the Small Business Service have indicated that many small businesses feel particularly disadvantaged by having to compete with “rogue” or unscrupulous employers in the “informal economy”, where many of those who seek employment-related advice from a CAB are working.16 10. Similarly, the Government loses out from the non-payment (by “rogue” employers) of tax and national insurance contributions, and from the frustration of its wider policy goal of a better work-life balance for all workers. And the increasingly widespread exploitation of migrant workers, associated as it so often is with the facilitation of illegal entry and employment, threatens to undermine the Government’s “managed migration” strategy of opening new routes for the legal migration of labour whilst tacking illegal migration and illegal working.

Current Enforcement of Workplace Rights 11. CABx work hard to increase both workers’ awareness of their statutory (and contractual) workplace rights, and employers’ understanding of their legal obligations to their workforce—for example, by distributing copies of the DTI’s authoritative booklets and leaflets on statutory employment rights.17 And they can assist workers who are not receiving one or more of their statutory (or contractual) workplace rights to approach and—where necessary—negotiate with their employer, with a view to reaching an amicably agreed improvement in the worker’s pay, terms or conditions.

11 Less than one in three workers in the UK are members of a trade union. Source: Trade union membership: estimates from the autumn 2003 Labour Force Survey, DTI, March 2004. 12 Blackburn, R and Hart, M (2002) Small firms’ awareness and knowledge of individual employment rights, Employment Relations Research Series No 14, DTI, August 2002. The researchers defined a “small employer” as one employing less than 50 workers. 13 “Seeing the big picture”, Brendan Barber, The House Magazine, 9 June 2003. 14 For further information, see: Nowhere to turn: CAB evidence on the exploitation of migrant workers, Citizens Advice, March 2004. 15 The Rt Hon Nick Brown MP, Hansard, House of Commons, 27 February 2004, col 538. 16 Source: Paragraph 5.27 of The National Minimum Wage: Fourth Report of the Low Pay Commission, Low Pay Commission, Cm 5768, March 2003. 17 Sadly, the DTI has recently ceased hard copy production of most of these booklets and leaflets, in favour of the texts being available via the Internet only. For further information, see: “The paperless waiting room” in evidence, Citizens Advice, April 2004. 3013721006 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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12. However, where the employer proves to be uncaring or intransigent, the principal (and in most cases only) means of enforcement available is the making of a claim to an Employment Tribunal. Again, CABx can and do provide advice on and assistance with the making of such a claim, and in some cases can provide representation at the Tribunal hearing itself.18 But the process is unduly legalistic and adversarial, and thus extremely daunting—especially to pregnant women, new parents, people with mental health problems, and other vulnerable individuals. Every year, about one-third of all ET claims are withdrawn by the claimant, with the most common reason given for such withdrawal being “stress”.19 And unpublished research by the Department for Constitutional AVairs indicates that, after relationship breakdown, the resolution of an employment problem is the “justiciable event” with the greatest personal (ie non-economic) impact on the individual concerned.20 13. For most low paid workers, the cost of legal representation at an Employment Tribunal hearing is prohibitive—there is no “legal aid”, and the resources of CABx and other sources of free representation are extremely limited. Increasingly, claimants face intimidation from some employers’ legal representatives, in the form of unjustified threats of a counter claim for “costs” of up to £10,000.21 And, even where a claim is successfully pursued to its conclusion, a favourable ruling and the making of a monetary award by the Tribunal may prove to be a hollow victory. Some employers simply fail to pay awards—which Employment Tribunals themselves have no powers to enforce—and the legal, financial and other obstacles to enforcement through the civil courts are immense.22 14. Moreover, for many workers, the legal protection supposedly oVered by this system is in any case rendered meaningless by their fear of being victimised or even dismissed just for making a claim to an Employment Tribunal. In particular, working parents, carers and those who—on account of their age, skills or disability—face the greatest challenge in finding alternative employment are often unwilling to put their job at risk by “going to law”. As the former government minister, John Denham MP, has noted recently: “It’s a vulnerable world. Mothers denied maternity pay may not want to risk a lengthy confrontation when they have a new child on the way. Change and challenge can mean instability in income, benefits and tax credits. Get it wrong and your family’s life can become much worse”.23 15. Citizens Advice has repeatedly suggested that, for such workers, there needs to be available, in addition to the Employment Tribunal system, a more accessible and pro-active system of enforcement that does not rely on individuals entering into such stressful, costly and damaging legal confrontation with their employer (or former employer).24

Pro-active Enforcement—The National Minimum Wage

16. In fact, in relation to just one statutory employment right—the right to the National Minimum Wage—such an accessible and pro-active enforcement mechanism already exists. 17. The introduction of the National Minimum Wage (NMW), in 1999, was accompanied by the establishment of a dedicated NMW enforcement agency within the Inland Revenue. The agency operates a national NMW Helpline, investigates complaints (including anonymous complaints) from both individual workers and third parties, and conducts unannounced, on-site inspections of carefully targeted employers about whom no complaints have been made to check that they are meeting their obligations in relation to the NMW. 18. The Government has stated that it established this accessible and pro-active enforcement regime for the NMW because it did not want workers “to have to rely on taking action against their employer themselves, as intimidation or fear of losing their job could prevent a worker from making a complaint [to an Employment Tribunal]”.25 And, despite its very limited brief and resources, there is broad support for the Government’s view that the work of the Inland Revenue enforcement agency in enforcing the NMW

18 All 530 CABx oVer general advice on employment matters, some 60% also oVer specialist employment advice from a dedicated adviser, and some 70% oVer representation at employment tribunals. However, even where the bureauoVers specialist employment advice and/or representation, this is likely to be provided by a single adviser who may also represent at other tribunals, such as welfare benefit tribunals. Many such advisers are in fact unpaid volunteers, some are employed but on a part-time basis only, and most have little if any clerical or administrative support. 19 Source: Findings from the 1998 Survey of Employment Tribunal Applicants, DTI, 2002. 20 Report on consumer research, Consumer Strategy Board, DCA, (forthcoming). 21 For further information, see: Employment Tribunals: the intimidatory use of cost threats by employers’ legal representatives, Citizens Advice, March 2004. 22 For further information, see: Hollow justice: the non-payment of Employment Tribunal awards by employers, Citizens Advice, (forthcoming). 23 John Denham MP, Fabian Society lecture, 17 May 2004. 24 See, for example: Wish you were here: a CAB evidence report on the paid holiday provisions of the Working Time Regulations 1998, Citizens Advice, September 2000; Birth rights: a CAB evidence report on maternity and parental rights at work, Citizens Advice, March 2001; and Fairness & Enterprise: the CAB Service’s case for a Fair Employment Commission, Citizens Advice, October 2001. 25 National Minimum Wage Annual Report, DTI/Inland Revenue, September 2003. 3013721006 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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has been “a great success”.26 Since 1999, the enforcement agency has dealt with more than 13,000 complaints, has revealed non-compliance with the NMW by more than 9,000 employers, and has identified more than £15 million in arrears of wages.27 19. A key feature of this approach to enforcement is that it tackles non-compliance by employers without individual workers having to put their job at risk by “going to law”. Since 1999, about 60% of all the NMW enforcement agency’s investigations have been instigated on the basis of “risk assessment” of tax credit information gathered by the Inland Revenue or other analysis, rather than as the result of a complaint from a worker or third party. 20. And, of course, a key benefit is that, acting at the level of the employer rather than the individual worker, it is capable of improving the lot of every worker in a workplace. In the experience of CABx, a worker who is not receiving his or her full legal entitlement to paid holiday, for example, is also likely not to have received a written statement of his or her terms and conditions. And it is likely that many if not all of his or her co-workers are being similarly treated. 21. But perhaps the most important lesson that can be drawn from the work of the NMW enforcement agency since 1999 is that, because much non-compliance by employers is inadvertent, rather than deliberately exploitative, the mere intervention of the agency is in most cases suYcient to achieve full and willing compliance. In other words, most “enforcement” is of a “soft touch” nature. 22. Citizens Advice has consistently argued that this accessible and pro-active approach to compliance should be extended to some of the other statutory workplace rights, including most of the basic “work-life balance” rights introduced or enhanced since 1997.28 Equipped with equivalent powers of investigation and enforcement as the NMW enforcement agency, a “Fair Employment Commission”—whether it be a single, over-arching body or a number of separate bodies working together in a co-ordinated, joined-up way— could work to maximise employer compliance, eliminate the exploitation and intimidation of the most vulnerable workers, and thus ensure that all workers are both properly rewarded for their work and able to achieve an eVective work-life balance. For, as Dr Howard Stoate MP has noted, “improving the quality of work experience of the working population of this country is a goal every bit as important as the goal of full employment”.29 23. Much as with the NMW enforcement agency, the key functions of the “Fair Employment Commission” would be to: — investigate complaints (including anonymous complaints) from both workers and third parties about non-compliance with certain basic, statutory employment rights; — conduct on-site inspections of carefully selected employers, targeted on the basis of “risk assessment” analysis of tax, national insurance, tax credit or other information; — provide guidance and, where necessary, practical assistance to non-compliant employers on how to change their practice to ensure compliance with their statutory obligations to their workforce; and — where necessary, undertake eVective enforcement action. This might include, as appropriate, the imposition of financial penalties, the referral of a case or cases to an Employment Tribunal, and/ or the imposition of a “stop now” order preventing the employer from trading his or her business. Such enforcement, which would generally be necessary only in the case of “rogue” or criminally exploitative employers, might well be undertaken by separate teams of oYcials (the “back oYce”) to those undertaking on-site inspections (the “front oYce”). 24. As noted above, much non-compliance stems from a basic lack of awareness of the statutory employment provisions. The work of the “Fair Employment Commission” could therefore include the undertaking of publicity campaigns aimed at increasing both employers’ awareness of their statutory duties and workers’ awareness of their rights and entitlements. And it could include the provision of information, “good practice” guidance and advice to both workers and employers through written material, telephone helplines, and Internet websites. 25. In doing so, the “Fair Employment Commission” would “join up” the work of this nature currently undertaken by the Department of Trade and Industry, the Inland Revenue, the Advisory, Conciliation and Arbitration Service (ACAS), the Small Business Service, the Health and Safety Executive (HSE), the various

26 See, for example: Paragraph 5.19 of The National Minimum Wage: Fourth Report of the Low Pay Commission, Low Pay Commission, Cm 5768, March 2003. 27 Source: Hansard, House of Commons, 1 April 2004, col 1593–4W. 28 We have suggested that, at the very least, the remit of the Fair Employment Commission should include the statutory rights to: a written statement of one’s terms and conditions, and regular, itemised pay slips; a weekly working-time limit of 48 hours, unless agreed otherwise; four weeks’ paid holiday, and Statutory Sick Pay; maternity leave and pay, and time oV for ante- natal care; adoption and paternity leave and pay; parental leave, and time oV for emergencies; and equality between part- timers and full-timers. The Commission’s remit might well also include employer compliance with the various tax credit schemes for working people. 29 Dr Howard Stoate MP, Hansard, House of Commons, 17 December 2001, col 125. 3013721006 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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equality commissions, and others. As noted above, the “Fair Employment Commission” need not be a single, overarching body. It could well be a partnership of new and existing bodies, working together in a co-ordinated, joined-up way. 26. In this context, Citizens Advice warmly welcomes the launch, in May 2004, of the one-stop Business Link website, providing a single point of access to government information and support for business.30 As well as providing access to government grants, loans and consultancy support, the site provides easy-to-use guidance on the basic statutory employment regulations and how to comply with them, to the mutual benefit of the business and its workforce. 27. At the same time, the “Fair Employment Commission” could work to educate both workers and employers about those workplace practices for which enforcement—whether by an arm of the Commission itself or through the Employment Tribunal system—is not so appropriate. For example, changing attitudes to child-care responsibilities and “flexible” working arguably depends as much on increasing awareness of the productivity and other benefits to business of such “work-life balance” policies, and ultimately on changing workplace culture, as it does on actual enforcement of legal rights. 28. Such a “Fair Employment Commission” could not cover all statutory employment rights (let alone contractual rights), and so would sit alongside and complement the Employment Tribunal system, rather than replace it. For, whilst the accessible and pro-active approach to compliance of a “Fair Employment Commission” would obviate the need for many workers to take their case to an Employment Tribunal, and would provide an alternative remedy for those who are unwilling or afraid to “go to law”, it would still be necessary and appropriate for many disputed cases—for example, those involving alleged breaches of contractual as well as statutory rights, or allegations of discrimination—to be resolved by an Employment Tribunal (or, in some cases, the civil courts). But with the basic, statutory “work-life balance” rights, at least, the Employment Tribunal system could become a genuine remedy of last resort, with the Commission providing the first line of (light touch) enforcement. 29. A “Fair Employment Commission” would in no way involve the imposition of more “red tape” on business. Fully compliant employers could expect to have no dealings with such a Commission. For the pro- active investigative work of such a Commission would be carefully targeted at those (mostly small) employers considered, on the basis of “risk assessment” analysis of tax, national insurance, tax credit and other information, likely to be breaching their statutory obligations to their workforce. And only those employers that are clearly in breach of their legal obligations, yet do not respond positively to the intervention of the Commission, would have any reason to fear enforcement action.

The Challenge, and The Prize 30. The creation of such a “Fair Employment Commission”—whether in the form of a single, over- arching body with a range of complementary functions, or as a network of new and existing bodies working together in a co-ordinated, joined-up way—would clearly be a significant and long-term undertaking. As a first step, therefore, we believe that the Government establish a Task Force on Fair Employment, led by a senior Minister with specific responsibility for both employment rights and business support. The Task Force could then oversee consultation on the precise role, remit, functions and structure of a “Fair Employment Commission”. 31. We recognise that this represents a major challenge for Government. The necessary funding is unlikely to be found within one departmental budget—so, ultimately, the Government will need to commit new resources. But the potential prize—for workers, employers, trade unions and government alike—is great: making the current compliance and best practice of most employers the standard practice of all. 32. Workers—and especially low paid workers employed in small, non-unionised workplaces—would benefit from enhanced access to their statutory employment rights, and thus from a better “work-life balance”. Employers—large and small—would benefit from the creation of a more level playing field, without risk of being unfairly undercut by an unscrupulous or criminally exploitative competitor, and from the availability of more practical, and better co-ordinated, business support services. The trade union movement would benefit from the extension of the culture of enforceable rights, in which trade union membership is more likely to flourish, to many of the currently non-unionised workplaces.31 The Government would benefit from the resultant reduction in the potential burden on the Employment Tribunal system, and from increased tax and national insurance revenue. And society as a whole would benefit from the more likely success of the Government’s strategies in respect of a flexible labour market, work-life balance, and managed migration. June 2004

30 At: www.businesslink.gov.uk 31 “Union chiefs back workers’ rights enforcement agency”, Financial Times, 2 June 2004. 3013721007 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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APPENDIX 5

Memorandum by the Confederation of British Industry

Executive Summary 1. The CBI believes that over the last two decades the strength of the UK’s flexible labour market has provided a source of competitive advantage for UK businesses. It has played a key role in making Britain an attractive place to do business. In an era of inexorably rising global competition, flexibility in the UK labour market has never been so important. It is vital that UK companies continue to prosper at the heart of the EU economy and that productivity is improved to match businesses in the US and those in the Asian- Pacific rim countries. 2. There is a strong link between high levels of flexibility and both low unemployment and high company performance. The Government wants to make the UK “the most employment friendly country in the world” and recognises this requires a high level of labour flexibility. Labour market flexibility is important for business because it allows employers to manage resources eYciently, improving productivity and competitiveness. It allows businesses to create jobs and adapt to changing market conditions and fluctuating demand. It is also important for society because it enables high productivity growth, allows regions to cope with asymmetric shocks without creating long-term unemployment and fosters the employment of labour market outsiders, particularly women, the young, older people and the long-term disabled. 3. The UK is frequently regarded as having high levels of flexibility. However, there is a danger of complacency. It is clear that while the UK has high levels of flexibility in some areas, it has significant weaknesses in others, such as skills. The UK is improving in its areas of significant weakness, but these problems are deep-seated and are likely to take a long time to resolve. At the same time there is a real threat from new EU and UK regulation. For example, European Commission proposals on Agency Work and on removing the individual Working Time opt-out represent significant threats to areas in which the UK has been traditionally flexible. 4. This response argues that: — several key dimensions of a flexible labour market contribute to the UK economy; — this framework of labour market flexibility has led to the UK’s unique position in a competitive global economy; and — new rafts of European employment legislation will only serve to further erode the UK’s flexible labour market.

Several key dimensions of a flexible labour market contribute to the UK economy 5. A recent CBI report on labour market flexibility identified a number of diVerent forms of flexibility which together determine whether a labour market—overall—is responsive enough to the needs of its employers and workers. The report was written after a survey of CBI members, conducted by MORI, suggested that while the majority of companies still found the UK an attractive place to do business, the business climate had deteriorated in recent years, and was expected to continue to do so. Each factor identified in the report is relevant to employment creation and productivity, but each impacts in diVerent ways and all are not of equal importance. Important factors in the report include: — Skills flexibility—a skilled and adaptable workforce is necessary for company competitiveness and wider economic prosperity. Employers need to make sure their workforce’s skills are relevant to the needs of businesses and can regularly update individual’s skills through appropriate training. Around one fifth of the UK workforce has low basic skills and although the UK is addressing the problem and continues to improve on graduation rates, performance on vocational qualifications and basic skills compares less favourably with key competitors like Germany. — Functional flexibility—it is important to enable those employees who are willing to adopt new working practices, such as teamworking and multiskilling, to boost the productivity of individual firms. The flexibility is partly determined by the skill level and adaptability of employees, but can only be achieved by the absence of practices such as demarcation and inflexibility of working practices. — Flexible working time arrangements—the ability for employers to oVer employees flexible working time arrangements has been critical to the UK labour market. More employees than ever before are able to manage their time with greater eYciency through oVers of part-time work, temporary work and annual hours agreements. In a service driven economy it ensures that staV are available when customers want to be served—and this may mean peaks in business at lunchtime, in the evenings or through the night. In the manufacturing industry too, continuous shift production 24 hours a day is often necessary to maximise productivity and returns on capital investment. Without these sorts of flexibilities jobs which could be created through business opportunities will be lost. And working time flexibility is not just a one-way street—it often allows a much better fit with employees’ lifestyle choices than the traditional five days a week nine to five. 3013721007 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— Numerical flexibility—refers to the ability of employers to carry out vital restructuring and initiate redundancies; excessive job protection legislation can create major disincentives to hiring. — Wage flexibility—has been critical in maintaining the competitiveness of individual businesses in world markets. If trading conditions are tough, businesses need to be able to contain wage costs and in some collective bargaining frameworks this can be very diYcult. And equally important, at the bottom end of the labour market, low skill jobs can be priced away by excessive minimum wages. That is not to say that there should not be a minimum standard on wages—it just has to be set at a realistic level. — Geographical flexibility—it is important for the labour market to enjoy high levels of geographical flexibility to allow workers who are willing to move between regions to find work. 6. Some of these flexibilities should be as highly developed as possible, but in others only modest capability is generally desirable. So, for example, whilst some movement between regions by workers in search of jobs is positive, the hollowing out of whole communities as people migrate is not. With skills, it is arguable that a country can never have a highly educated enough population or relax its drive to achieve lifelong learning and reskilling, which the CBI supports.

This framework of labour market flexibility has led to the UK’s unique position in a competitive global economy 7. The key dimensions outlined have created a unique labour market in the UK when compared to other EU countries—one which has led to consistently high levels of employment and job creation. Overall unemployment in the UK is down to historically low levels by international standards and productivity growth has kept pace with other G8 nations when in the 1970s it consistently fell behind. Perhaps most importantly after the huge shedding of manufacturing jobs in the early 1980s the UK has successfully created jobs in the service sector—in areas like finance, insurance, IT, media, healthcare, and hospitality. 8. This job creation partly reflects major eVorts by the Government and employers to upskill the workforce—the UK, for example, nearly doubled the numbers of youngsters attending university in the last twenty years. It reflects the importance of the ability for employers to oVer flexible working contracts to staV to meet business needs. 9. The UK has led the way in terms of flexible labour policies—the UK has the second highest rate of part-time work in the EU and a growing number of agency and teleworkers. The UK has the largest agency work sector in the EU and large numbers of employees welcome the flexibility—over 80% of those who work part-time do so because they do not want a full-time job. The UK also has one of the best records in the EU on employing both women and those over the age of 50. Flexible labour market policies particularly benefit such groups, who often have caring or other responsibilities outside of work meaning that they could not manage an ordinary nine-to-five job. And although the Labour administration introduced a national minimum wage, it has been carefully set at a level that has—for the time being—avoided causing job losses. 10. Industrial relations have also been transformed. Industrial action in the private sector is now very rare and this reflects a seachange in union philosophy. Partnerships between employers and unions to work together to promote the success of companies are now commonplace and where problems do occur they are much less likely to escalate into industrial disputes. 11. A final key strength is that successive governments and perhaps most notably the current Labour administration have put considerable emphasis on active labour market policies. Under the New Deal scheme introduced in 1997, passive unemployment is not an option—either training or a subsidised job must be taken in return for benefits. And there has been a crackdown on availability of disability benefits, with other benefits too being tailored to incentivise people to return to work. 12. Of course there are still weaknesses to be tackled. Regional unemployment still remains high, particularly amongst certain ethnic minority groups. And the skills base remains poor at the bottom end— with nearly 20% of the potential workforce either functionally illiterate or innumerate.

New rafts of European employment legislation will only serve to further erode the UK’s flexible labour market 13. Since 1997, the Government has campaigned for labour flexibility. It believes this is crucial to realise one of its key priorities—full employment in the UK. The Government has introduced a number of new pieces of employment legislation and many of these have been new family-friendly rights, including the right to request flexible working, extended maternity leave and pay, parental leave, paternity leave and emergency time oV for dependants. The sensible implementation of these policies demonstrates the success which flexible UK labour market policies can deliver. These policies coupled with stable macro economic polices has helped deliver some real successes for businesses. However, in addition to nationally introduced employment law there has been an influx of new requirements from the EU which has meant the Government has introduced a cumulative total of 21 major pieces of employment legislation since 1997. Not all of these have been suitable to UK business and there are developments simmering in the EU which threaten to undermine our current flexibility. 3013721007 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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14. The European landscape now dominates the UK in a political and legislative sense. It is the UK’s ability to tread the line between flexibility and regulation that makes, and will continue to make, the UK an attractive place for inward investment. The EU has undertaken a spectrum of reforms to labour market policy in recent years, with the aim of introducing minimum standards. Many of these are relatively uncontroversial and could actually help free up labour markets by making them accessible to more. However, there are also dangers and continual and growing signs that the EU intends to take labour market protection too far and in a way which could be extremely harmful to the UK economy. This new style of legislation has caused policy-makers to pose a number of questions regarding the impact of such legislation on employers and employees. 15. Employers are now faced with a considerable management challenge in terms of the application of resources in an evermore-competitive economic environment, with what they see as an increasingly inflexible resource in terms of their employees. For example, many employers will face the challenge of implementing new policies and practices to comply with regulations that will introduce the Information and Consultation Directive. The same is also true for the 2000 Equal Treatment Directive under which the UK Government is required to introduce legislation banning age discrimination by 2006. In implementing this Directive the UK Government must not be seen to be goldplating, for example by abolishing normal retirement ages, particularly, when other EU member states have not. The UK Government must listen to business concerns about the practical consequences of removing retirement ages. 16. Other regulatory threats continue to appear from the Commission. If passed in its current form the Temporary Agency Work Directive will severely restrict company’s abilities to rely upon temps to fill in at times of peak labour demand—essential if businesses are to be able to take advantage of sudden and unforeseen business opportunities. In a recent CBI study businesses revealed that should the draft directive be passed in its current form it would damage business competition, introduce excessive red tape, deter potential inward investment and reduce the number of temporary assignments without creating new permanent jobs. Many companies in industries ranging from hospitality, manufacturing, telecommunications and transport have argued that one of the main reasons they are located in this country is because the UK oVers the ability to operate flexible workforce/resourcing strategies. The proposed directive threatens to significantly erode the labour market flexibility businesses need. 17. There is a threat to remove the individual opt-out from the working time Directive, which allows employees who want to, to agree to work more than an average 48 hour week—allowing employers to rely upon overtime to fill labour shortages. The CBI believes that it is essential for the competitiveness of the UK economy for employers to maintain the right to ask their employees if they want to opt-out and work longer hours. A significant number of UK companies use and value this important flexibility and one UK firm has estimated that withdrawing the ability to use the opt-out would cost its business £300,000 per week during peak periods. Companies believe that the individual opt-out is also valued by employees as it gives them greater autonomy over their working lives and provides them with important choice over when they work. 18. Further damage to UK labour market flexibility could be caused if the Charter of Fundamental Rights in the proposed Constitution Treaty is adopted in its current form. Although the CBI is supportive of the principle of a declaratory Charter, setting out the fundamental rights currently recognised by the EU, there are real risks to the proposal to make the current aspirational Charter a legally binding document by incorporating it into the Treaty. It could transfer competencies to European institutions on matters which are, and should remain, the responsibility of national governments, such as the right to strike and unfair dismissal. 19. A Commission document on corporate restructuring produced in 2002 suggested that more needed to be done to prevent companies restructuring if this would result in job losses, and the Commission suggested that companies should be banned from restructuring at all if they are in profit. Such a measure would render companies paralysed to adapt to changing marketplaces and unable to compete in a global economy. These are just a few of the reforms which have been suggested by the EU and which threaten both economic growth and job creation. 20. The UK has reformed itself over the last twenty years to become a globally competitive economy, and flexible labour market policies have been at the heart of these reforms. We only need to look at 1970s Britain to realise the damaging aVects that an overly restrictive labour market can have. Then the problems were caused by excessive union power, but excessive legislation at either a domestic or a European level will have the same eVect. There is a need for all European states to be strong in ensuring that the EU’s policies do not restrict job creation and economic growth. Otherwise we risk leaving an EU unable to compete in the global marketplace. 21. Labour market flexibility is important for job creation and high productivity and has been a source of competitive advantage for the UK. DiVerent countries have relied on a range of options to deliver flexibility. Many EU states have sought to create high productivity, but have suVered from high unemployment and poor job creation. Conversely, the UK has high levels of employment, but our labour productivity lags behind. UK companies are seeing their workforce flexibility restricted by EU regulation while still needing to play catch-up in terms of skills and functional flexibility. It is important the UK Government ensures the EU Commission recognises that the UK’s flexible labour market policies deliver employment growth and choice for employees. Inappropriate EU legislation should be strongly resisted and 3013721007 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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strategic alliances forged with supportive EU states. It is also crucial for the UK Government to avoid gold- plating EU regulation and continue to improve standards of education, particularly in literacy and numeracy. June 2004

APPENDIX 6

Memorandum by the Department of Trade and Industry

Introduction 1. The Government welcomes the Committee’s inquiry into employment regulation in the United Kingdom. This memorandum sets out the Government’s approach to regulating the labour market, describes the key measures it has introduced since 1997, considers their impact on the economy including employment levels and flexibility and, finally, looks to the future.

Summary 2. The UK labour market has performed strongly in recent years, supported by a stable macroeconomic framework as well as Government policies to achieve full and fulfilling jobs. These policies are intended to encourage partnership between employers, employees and Trade Unions, and to remove barriers to job creation and labour force participation. 3. The Government believes that eVective and well-focussed employment regulation plays a vital role in correcting market failures and ensuring decent standards are maintained in the labour market. Unnecessary or poorly designed regulation can however hinder employment growth and competition. In the 2003 Budget, the Government set out clearly the twelve principles that would guide its interventions in the labour market. 4. The Government will always consider alternatives to regulation first, but will regulate when necessary or when other options have failed to meet their objectives. The measures introduced since 1997 have provided substantial benefits to workers and helped raise business standards without damaging employment levels or adding substantially to business costs. Overall the United Kingdom remains the most flexible labour market in the European Union.32 The Government believes it has found the right balance between flexibility and security.

The Government’s Approach to Regulating the Labour Market 5. The Government wants every individual to develop their true potential, regardless of their background or talent. Full employment and fulfilling jobs are central to realising this. Employment legislation should be seen in the wider context of ensuring full and fulfilling employment in the UK, alongside policies to ensure macroeconomic stability, to increase productivity, to ensure that work pays, and that those looking for work have the information and training opportunities that they need to enter or re-enter the workforce. 6. The Government’s employment relations programme aims to maximise potential in the workplace by promoting a more diverse workforce, maintaining an eYcient and flexible labour market, and encouraging co-operative employment relations and ways of working that foster high performance. In its first term, the Government put in place a framework of decent minimum standards that balanced flexibility and fairness. In Full and Fulfilling Employment: Creating the Labour Market of the Future33, the Government set three broad objectives for its employment policies in its second term: — Full employment. Employment rates are currently amongst the highest on record, but more can be done. Unemployment levels and inactivity in certain geographic areas and among certain age and minority ethnic groups are still too high. Inactivity is a problem. Decent standards in the workplace can bring more people into the work place. Whether by guaranteeing a minimum wage or giving rights to working parents, the Government helps raise employment and develop a diverse pool of skilled labour. — Diversity and choice. The employment rates of female and older workers are increased if the labour market oVers choice and diversity to individuals when they consider the hours that they are able to work. Greater flexibility of hours worked will raises growth potential and leads to more jobs in

32 See International Monetary Fund United Kingdom—2002 Article IV Consultation Concluding Statement on http:// www.imf.org/external/np/ms/2002/120902a.htm which states that “The UK labour markets are more flexible than those of other European economies. This flexibility has significantly contributed to low unemployment and high participation rates. . .”. 33 See Department of Trade and Industry (2002) Full and fulfilling employment: creating the labour market of the future, London, URN 02/1051. 3013721008 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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the UK. Choice is also expanded when individuals have higher skills levels. A critical tool for a dynamic and flexible labour market is for individuals to have access to skills that are relevant, regularly updated and transferable. — High productivity. Higher skills levels raise the productivity of workplaces. Productivity is also higher when we create the kind of workplaces that have high levels of commitment between employers and employees. Academic literature has identified a wide range of ways of working associated with high performance.

Promoting a diverse labour force 7. The UK has a diverse population. The 2001 census showed that the ethnic minority population now accounts for nearly 8% of the population and that by 2014 there will be more people over 65 than under 16. Businesses with a diverse workforce are likely to attract a wider customer base, have the ability to recognise new potential markets and to provide a better, more tailored service to meet individual needs. Businesses benefit from taking action on diversity and equality not just in terms of better recruitment and retention, but also better staV morale and performance. The Government has a role to play in making sure that particular groups are protected against discrimination in the workplace through legislation and ensuring that it is enforced. 8. The eVect of intervention in the labour market on employment opportunities, especially among disadvantaged or vulnerable groups, is an important policy consideration. Poorly designed regulation can benefit insiders at the expense of outsiders, protecting those with jobs but making it riskier for firms to take on new or inexperienced staV. Although employment protection is generally shown to have little or no eVect on the employment rates of prime-age males, several studies suggest that stringent employment protection tends to decrease the employment rates of both young people and women.34

Maintaining an eYcient and flexible labour market 9. Labour market flexibility plays an important part in meeting the Government’s objectives for full employment and social justice. A flexible and eYcient labour market, combined with a stable macroeconomic environment, implies an economy that is more competitive and productive, and which provides greater fairness. It also means an economy that is better able to respond to economic change. 10. A perfectly flexible labour market is one in which, following any change in the economic environment, the labour force would be immediately redeployed to its most eYcient use. The labour market can be flexible in many ways: through how quickly wages respond to a shock; through the ability and willingness of labour to move into new jobs; and the ability of employers to alter employment quickly. In practice, there are costs and barriers to such instantaneous adjustment which means that it takes time for wages and the supply and demand for labour to reflect fully this new economic environment. This is likely to imply a rise in unemployment or a drop in employment, either permanently or temporarily. 11. Labour market policies and institutions influence these three aspects of flexibility in the following ways: — The tax and benefit system influences individuals’ decision to participate in the labour market and the wages at and hours which they are prepared to work. — Active labour market policies raise the eVectiveness of the unemployed and smooth their reintegration into the labour market. They can also encourage and help those that are inactive back to work. This can reduce the need for employers to raise wages and therefore increase the medium to long-run responsiveness of wages to unemployment. — An appropriate degree of regulation can improve eYciency (though correcting market failures) and increase fairness and safety in the workplace. EVectively targeted regulation can also improve the flexibility of the labour market by improving the quality of job matching and therefore reducing the cost of labour turnover to firms. However, if regulation is set ineVectively then it can constrain the choices of employers and employees and thus reduce labour market flexibility.

Encouraging co-operative employment relations and ways of working that foster high performance 12. It is widely recognised that the UK faces a skills challenge35 and in 21st Century Skills, Realising Our Potential the Government set out its strategy to tackle this.36 It is not enough however that business recruits people with the right skills mix. It is how they are deployed in the workplace. In part this is a question of work organisation and how jobs are designed, but it goes further. Skilled staV are more likely to stay if they

34 The forthcoming OECD Employment Outlook 2004 will have a chapter on employment protection regulation and labour market performance and will consider these issues—publication date July 2004. 35 See Department of Trade and Industry (2003) UK Productivity and Competitiveness Indicators 2003 DTI Economics Paper No 6 URN 03/1574. 36 See Department for Education and Skills 21st Century Skills, Realising Our Potential, launched in July 2003 at http:// www.dfes.gov.uk/skillsstrategy/ 3013721008 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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are treated fairly (including equal pay), and provided with choice and flexibility in the hours and way they work. They will be more committed to company objectives if they are properly involved in decisions through eVective information and consultation. And there must be investment in ongoing training to adapt skills and competences to specific tasks and job requirements as well as ongoing career development. 13. The promotion of such high performance workplaces practices increases incentives for employers to invest in training and raise employees’ commitment (and hence productivity). Policies that foster commitment in the workplace (equal treatment, partnership working, family friendly policies, low pay/equal pay, working time, worklife balance) will boost sustainable employment and encourage training. However, evidence from the 1998 Workplace Employment Relations Survey (WERS) suggests that the take-up of such practices is not yet widespread in Great Britain.37

The European dimension 14. Much employment regulation stems from Europe. The Government supports the comprehensive framework of decent minimum standards that has developed at EU level and that safeguards the core rights of employees. Given the acquis that now exist at both national and EU level, any new proposals for legislation need to be rigorously assessed for impacts on competitiveness and employment. 15. The Government is a strong supporter of the European Employment Strategy and welcomed the firm conclusions from the European Employment Taskforce, chaired by Wim Kok, on the reforms needed if Member States were to meet the employment targets set at the Lisbon Council in March 2000. The processes of sharing best practice and challenge through peer review that underpin the European Employment Strategy provide the necessary flexibility to tackle problems in a way that fits with the diVerent traditions and structures of national labour markets.

Better policy making 16. The Government is committed to ensuring that regulations are fair and eVective and that all new and existing regulation is necessary, does not impose a disproportionate burden on employers and meets the following principles of better regulation. — Proportionate: Regulators should intervene only when necessary. Remedies should be appropriate to the risk posed, and costs identified and minimised. — Accountable: Regulators must be able to justify decisions, and be subject to public scrutiny. — Consistent: Government rules and standards must be joined up and implemented fairly. — Transparent: Regulators should be open, and keep regulations simple and user friendly. — Targeted: Regulation should be focused on the problem, and minimise side eVects. 17. In 2002 the Better Regulation Taskforce produced a report on employment policy.38 It recommended how the policy making process could be improved, such as greater exploration of alternatives to regulation. It examined the help and advice provided to businesses by government and made recommendations intended to help employers understand and administer employment rights, such as using common commencement dates for employment policy changes and piloting a shared HR resource. The Government is implementing all the recommendations. 18. As part of its response to the Better Regulation Taskforce, DTI has brought in changes to employment law and practice on only two dates in each year: 6 April and 1 October. These common commencement dates apply to changes arising from within the UK and on which the Department leads. The first common commencement date was in April 2004. The harmonisation of commencement dates is intended to ensure that changes to employment policy are made in a co-ordinated fashion and provide businesses, employee representatives and individuals with greater clarity and awareness about when changes will be made. This should assist all parties to plan for new measures and help implement them eVectively. The adoption of common commencement dates for employment regulation has been welcomed by business and employer organisations as a welcome innovation, introducing greater certainty about changes to the regulatory environment. A statement of forthcoming regulations in 2004 is available on the internet.39 19. In the 2003 Budget, the Government set out clearly the twelve principles that would guide its interventions in the labour market: — intervention only where there is a recognised and significant problem requiring a government response; — full consideration of policy alternatives, to keep distortions and regulatory burdens to a minimum;

37 See Cully M, Woodland S, O’Reilly A and Dix G (1999) Britain at work—As depicted by the 1998 Workplace Employee Relations Survey Routledge, London and New York. 38 see Better Regulation Task Force (2002) Employment Regulation: striking a balance, London available at http://www.brtf.gov.uk/taskforce/reports/entry%20pages/emplawentry.htm 39 see Department of Trade and Industry (2004) Statement of Forthcoming Employment Regulations available at http://www.dti.gov.uk/er/regs2004.htm 3013721009 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— benchmarking of new proposals against existing requirements in other OECD countries; — assessment of the consequences for small firms in particular, and consideration of small firms’ exemption where appropriate; — testing for the impact on labour flexibility and employment opportunities, especially among disadvantaged or vulnerable groups; — testing for the impact on productivity and growth; — intervention will be subject to cost-benefit analysis and, for regulation, Regulatory Impact Assessment; — proper consultation in compliance with the Government’s code on written consultation, prior to a decision being taken; — the Department of Trade and Industry will implement changes to employment regulations only in April and October each year, unless European obligations require otherwise; — information and support packages for firms, for all measures which have a potentially large impact on businesses. This will include a strategy to help businesses comply with any new legal duties; — promotion of alternative means of resolving employment disputes; and — where EU regulation might aVect competitiveness, evaluation by the Competitiveness Council prior to a decision being taken to ensure proposals are not harmful to economic and employment objectives. 20. The DTI is committed to better policy making and delivering on these principles. We have been: — overhauling our consultation procedures. More eVective consultation with businesses and their representative organisations and trade unions leads to better policy outcomes. A recent MORI survey of DTI’s stakeholders (MORI, May 2004) indicates that the most stakeholders believed its consultations have improved. DTI is spreading the success of the automotive industry-wide government forum to construction, chemicals and retail sectors; — improving the quality of Regulatory Impact Assessments, including consideration of alternatives and better data on the costs and benefits; — using of the Small Firms’ Impact Test to better understand the impact of the policy options on small businesses; and — raising the profile of better regulation in Europe, including competitiveness testing. 21. A key part of ensuring better regulation is making sure that the latest available evidence is used for assessing the likely impacts of policies and adequately monitoring and evaluating them once they are implemented. In this way it is possible to tell whether policies are having their intended eVect and whether there are any unintended consequences: — All proposed regulations that are likely to have an impact on business are accompanied by a Regulatory Impact Assessment. These are posted on DTI’s website and those published in 2003 have been collected in a compendium.40 — DTI’s monitoring and evaluation plan for employment relations legislation is supported by an extensive research programme and looks at the impact of the whole programme as well as the individual strands. It also focuses on the impact on business, individuals, public services (such as the Employment Tribunal Service) and the whole economy.41 — As part of a process of continuingly improving its analysis, DTI will soon set up a panel to advise on latest evidence of potential problems in the field of employment relations and the best methods to assess the impact of Government policy. The panel will include experts from outside Government.

Key Measures Introduced Since 1997

Ensuring a national minimum wage 22. The statutory national minimum wage, introduced on 1 April 1999, forms part of the Government’s overall strategy to establish fairness in the workplace and to make work pay by ensuring that all workers receive at least the hourly minimum rates set. The rates are based on the recommendations of the independent Low Pay Commission whose members are drawn from the ranks of employers, employee groups and academic experts. The Commission carries out a wide-ranging consultation and fact-finding exercise before arriving at its recommendations. The Low Pay Commission has said that the vast majority of employers are complying with the national minimum wage. Overall awareness of the minimum wage is high and the enforcement system appears to be working well.

40 See Department of Trade and Industry (2004) 2003 Compendium of Regulatory Impact Assessments Employment Relations Research Series No. 28 URN 04/743 weblink http://www.dti.gov.uk/er/emar/errs28.pdf. Compendiums for previous years’ RIAs will be published online in coming months. 41 To be published shortly. 3013721009 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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23. The national minimum wage rate is currently £4.50 per hour for workers aged 22 or over. A development rate of £3.80 per hour applies to workers aged 18–21 inclusive. The rates from 1 October 2004 will be £4.85 for those aged 22 or above and £4.10 for the 18–21 age group. The Government has also accepted the recommendation of the Low Pay Commission to introduce a new £3 minimum rate for 16 and 17 year olds (who have ceased to be of compulsory school age). Between 1.0 and 1.2 million low-paid workers (around two thirds of who were women) stood to benefit from the minimum wage rate increases on 1 October 2003, and our best estimate is that around 1.6 million workers stand to benefit from a further increase agreed for 1 October 2004.

Promoting a diverse labour force 24. The Government is introducing tougher rules to prevent discrimination in the workplace. A European Directive42 in 2000 established a general framework for equal treatment in employment and vocational training and required the introduction of legislation prohibiting discrimination against individuals on the grounds of religion or belief, age, disability and sexual orientation in the fields of employment, self-employment, occupation and vocational training. 25. The Employment Equality (Sexual Orientation) Regulations 2003 and the Employment Equality (Religion or Belief) Regulations 2003, which came into force in Great Britain43 in December 2003, implement the sexual orientation and religion strands of the Directive. The Regulations cover all aspects of the employment relationship, including recruitment, pay, working conditions, training, promotion, dismissal and references. They apply to all workplaces in England, Scotland and Wales, large or small, both in the private and public sector. Corresponding legislation in Northern Ireland also came into force in December 2003. Like most other equality legislation, the Regulations contain exceptions to the general prohibition against discrimination. But these are strictly limited, have been carefully drafted and are justified. 26. The deadline for implementing the age strand of the Directive is December 2006. The Directive recognises that in some circumstances a diVerence of treatment on the grounds of age can be justified and these need careful and sensitive consideration. The statutory redundancy payment scheme is to be amended to remove elements that discriminate unjustifiably on grounds of age, as one aspect of the forthcoming legislation to combat age discrimination. 27. The creation of a commission for equality and human rights responds to the need to provide institutional support for the new discrimination legislation, the recommendations to provide such support for human rights, and the need for an integrated approach to tackle multiple-discrimination. It will also address the call from the private sector for there to be a single, coherent voice on equality and human rights issues.

Maintaining an eYcient and flexible labour market 28. The Employment Act 2002 introduced a package of new and improved laws to give parents more choice and more support than ever before to help balance childcare with work in ways that benefit employers, employees and their families. The laws followed extensive consultation with parents, unions, employers and their representatives on what the new measures should be and how they should work: — Mothers and fathers of children under 6 and disabled children under 18 have a new right to apply to work flexibly and their employers have a duty to consider their requests seriously. Employers can refuse where it makes business sense to do so. — Maternity leave has increased. All mothers can take 26 weeks’ ordinary maternity leave. Additional maternity leave has also increased to 26 weeks. The qualifying service for additional maternity leave has been reduced so most mothers can now choose to take up to one year oV work. — Payment of Statutory Maternity Pay (SMP) and Maternity Allowance were also extended to 26 weeks and the rate increased to £100 per week (£102.80 from 4 April 2004) or 90% of average weekly earnings if that is less than 26 weeks. — Fathers were given the right to two week’s paternity leave with Statutory Paternity Pay paid at the same standard rate as Statutory Maternity Pay. — Adoptive parents can now take up to one year’s adoption leave with 26 weeks’ Statutory Adoption Pay. 29. These measures are in addition to laws for working parents which were introduced by the Employment Relations Act 1999 to implement the Parental Leave Directive: — Parental leave helps parents take unpaid time oV to care for their child. Most parents have a right to 13 weeks’ parental leave which they can take up to their child’s fifth birthday. Parents of disabled children can take 18 weeks’ leave up to their child’s18th birthday.

42 2000/78/EC of 27 November 2000. 43 In general employment relations legislation introduced since 1997 by the Department of Trade and Industry has applied to Great Britain, with the exception of the NMW which applies to the whole of the UK. 3013721009 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— Time oV for dependants enables all employees to take a reasonable amount of unpaid time oV to deal with an emergency involving a dependant. 30. The Working Time Regulations 1998 which implement the provisions of the Working Time Directive came into force on 1 October 1998. They give rise to rights and obligations relating to work and rest including a limit on the average weekly working time to 48 hours, entitlement to 20 days paid leave and minimum daily and weekly rest periods. The Directive currently includes a provision that means Member States can give individuals the right to opt-out of the weekly working time limit, which the UK has adopted in its regulations. The European Commission is currently reviewing this and other aspects of the Directive. The Government is arguing strongly for the retention of the opt-out to maintain the flexibility our individual labour market requires, and the choice which many individual workers prefer. 31. Since its launch in 2000 the Work-Life Balance campaign has been demonstrating to employers the case for adopting flexible working practices and showing that the provision of such opportunities enables both the business and the individuals within it to maximise their potential. Using case studies, a body of research evidence and a dedicated website the DTI has highlighted the business benefits that can accrue to companies who have considered work-life balance, and then implemented, alternative, and more flexible ways of working. Historically practical help in implementing work-life balance initiatives was provided through the DTI Challenge Fund. Work life balance is now being delivered through the DTI’s new Business Support products. 32. The Part-time Workers (Prevention of Less Favourable Treatment) Regulations, which came into force in July 2000 and implemented a European Directive, ensure part-time workers are treated fairly in relation to full-time colleagues. Under the Regulations, part-timers should receive the same hourly rate as comparable full-timers; not be excluded from training simply because they work part-time; have the same entitlements to annual leave and maternity or parental leave on a pro-rata basis as full-time colleagues and be treated fairly in the selection criteria for promotion and transfer or selection for redundancy. Six million part-time workers in the UK benefit from these provisions. 33. The number of people working on a fixed-term contract in the UK is between 1.1 and 1.3 million. Regulations introduced in 2002 to implement a European Directive protect employees on fixed-term contracts, but have maintained flexibility for employers and employees. Fixed-term employees are now entitled to the same pay and conditions as permanent ones and will be treated as permanent employees if employed on fixed-term contracts for more than four years without good reason. 34. The proposed Agency Work Directive aims to apply the principle of equal treatment to basic working and employment conditions, including pay, to temporary agency workers. The Government believes that temporary agency workers deserve appropriate protections, which is why the national minimum wage and working time legislation make specific provisions to cover them. However, the Government remains concerned that the proposed qualifying period for equal treatment of six weeks could have an adverse impact on the attractiveness of agency workers to user companies. This might reduce the numbers of jobs available. The Government is therefore continuing to seek a significantly longer qualifying period. There has been no formal discussion of the Agency Worker Directive since the June 2003 Employment Council which failed to reach a common position. 35. A public consultation exercise is due to take place in autumn 2004 on a draft of revised Transfer of Undertakings (Protection of Employment) Regulations. This will be the final stage in an extensive process of formal and informal consultation on proposals to reform the Regulations, which safeguard employees’ rights when the business in which they work changes hands between employers. The aim is for new Regulations to come into eVect in April 2005.

Encouraging co-operative employment relations and ways of working that foster high performance 36. The Government wants to see more high performance workplaces where workers, employers and their representatives work in partnership to create a climate of good employment relations. The Government has introduced a wide range of collective and individual trade union rights, such as the right for trade unions to be recognised for collective bargaining purposes; giving rights to paid time oV for union learning representatives; the right to accompanied by a trade union oYcial or fellow worker in disciplinary and grievance procedures; strengthening protections against dismissal for strikers on lawfully organised industrial action and strengthening trade union membership rights. The Government considers that our framework of trade union rights sets the right conditions for achieving co-operative employment relations. 37. Legislation to implement the Information and Consultation Directive will come into force in Spring 2005, giving employees in larger firms the right to be informed and consulted about the business they work for and decisions aVecting the prospects for employment. The forthcoming Regulations illustrate the balanced approach to employment legislation taken by the Government. A framework for implementation was agreed with the CBI and TUC, following a wide-ranging public consultation exercise involving individual businesses, employer bodies and trade unions, as well as individual employees, employee representatives, lawyers, academics, consultants and specialist organisations. The draft legislation does not impose a uniform, rigid system of consultation on business but gives flexibility for firms to agree 3013721010 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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consultation arrangements best suited to their particular circumstances. It also ensures employees gain the new rights provided by the Directive, while allowing them to agree arrangements that they want rather than having something imposed. 38. New regulations have been introduced to implement the dispute resolution provisions of the Employment Act 2002. These will come into eVect on 1 October 2004. New employment tribunal regulations and rules of procedure, new Employment Appeal Tribunal regulations and a new Acas Code of Practice on disciplinary and grievance procedures are expected to come into eVect on the same date, forming a coherent package of measures to promote the resolution of employment disputes, where possible without recourse to legal action. Public consultation has taken place on each of these measures, and an extensive guidance campaign is underway to promote understanding of the changes. 39. The Partnership Fund has been an essential part of the Government’s non-legislative approach to develop employment relations in order to achieve productivity improvements. The Fund initially supported Workplace Partnership projects within individual organisations .The expansion of the Fund introduced the capacity to take forward bigger strategic projects. This provided the leverage to reach out beyond single company projects to address sectoral and regional issues. The DTI has funded 249 projects and committed £8.42 million on externally-led workplace projects. A further £3.82 million has been committed for Strategic Partnership projects.

Impacts of Regulation

Cost of legislation to business 40. Concerns about the compliance costs for business have been a recurrent theme of debates surrounding implementation of employment legislation. It is important to distinguish between the costs to employers of providing better working conditions and benefits for employees—sometimes called policy costs—and the costs to employers of administration, record keeping and other measures required to demonstrate compliance, which may include costs of defending employment tribunal applications (in cases where the complaint is unfounded)—sometimes called implementation costs. Most of the expressed concern has been about implementation costs. A table of costs to business of the legislation so far is provided in Annex B, which shows that cumulative implementation costs of the legislation so far are under 3p per employee per week. Policy costs are about £4 per employee per week (or less than 1per cent of total UK wages and salaries). This does not include any business benefits. 41. Data on executive perceptions also provide a partial indicator of the cost to business of legislation. The annual survey of business executive perceptions in the International Institute for Management Development’s World Competitiveness Yearbook suggests that the UK labour market is perceived to have a significantly better regulatory environment than other major European countries and Japan. However, since 1996–97 there has been some decline in this perception—in common with both France and Germany. 3013721010 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Chart 1: Business executive perceptions of labour regulation

G7 comparison, 1996-2003 Survey score, 0-10 scale 10

8

6

4

2

0 USA Canada UK Japan Italy France Germany

1996 & 1997 1997 & 2000 2002 & 2003

Note: A higher score indicates a better regulatory environment Source: IMD

Impact on small firms 42. A DTI survey44 of small and medium enterprises in 2000 found that 17% of SMEs mentioned government legislation as a main factor acting as a constraint on growth. This was behind competition (33%), but above premises and rates (12%).45 A detailed examination of the kind of legislation or regulations mentioned by employers as acting as a constraint on business performance found that employment laws was the most commonly cited. A substantial minority, 35%, identified benefits from employment legislation.46 43. What the surveys cannot provide is robust evidence on the size and real impact of any identified eVect. This is incredibly diYcult to estimate even using in depth qualitative methods. A qualitative study47 found that employers had great diYculty quantifying the impact of legislation. 44. The perceived burdens on business may to some extent be transitory. A study of the Working Time Regulations—based on two sweeps of selected organisations a year or so apart—found that firms had largely adjusted to the administrative requirements by the time of the second visit.48

Impact on employment 45. OYcial data from the OYce for National Statistics show rising employment and falling unemployment over the past decade in spite of the global economic slowdown in 2001. The employment rate has risen steadily since the economy emerged from recession, reaching 74.9% in the first quarter of 2004, the joint highest since the series began in 1984. The unemployment rate (on the internationally recognised ILO measure) fell sharply during the second half of the 1990s, and at 4.7% in the three months to March 2004 is the lowest since the series began 20 years ago. These changes to the labour market are not just cyclical

44 Blackburn R and Hart M (2002) Small firms’ awareness and knowledge of individual employment right Employment Relations Research Series no 14 Department of Trade and Industry URN 02/573. 45 These results are consistent with the findings of more recent surveys. See “A Government Action Plan for Small Business: The Evidence Base” available on http://www.sbs.gov.uk/content/analytical/evbaseregulation.pdf 46 These statistics come from diVerent questions in the survey and should therefore not be combined. 47 Edwards P, Ram M and Black J (2003) The impact of employment legislation on small firms: a case study analysis Employment Relations Research Series No. 28 Department of Trade and Industry URN 03/1095. 48 Neathey F and Arrowsmith J (2001) Implementation of the Working Time Regulations Employment Relations Research Series No 11 Department of Trade and Industry URN 01/682. 3013721010 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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but also longer term. The OECD49 believes that the unemployment rate below which there starts to be upward pressures on inflation50 has fallen from 8 to 5.5% since the early 1990s. It is clear, therefore, that the measures that the Government has introduced since 1997 have not had an adverse eVect on aggregate employment levels or rates of job creation.

46. A wide range of employment opportunities is available in the UK, which serves to increase the supply of labour so that those workers who cannot take full-time employment remain engaged with the labour market. The incidence of part-time working picked up in the 1990s and it is possible that in recent years the incidence of those working on flexitime has been edging up slowly. Through both targeted regulation and spreading best practice, the Government has sought to increase opportunities for flexible working and to maintain parents’ attachment to the labour market whilst they achieve their desired work-life balance.

47. The proportion and the range of part-time work is high in the UK, when compared with other EU Member States. The incidence of self-employment is about average. The incidence of temporary employment appears to be below the European average, although this is not at present particularly indicative of relative flexibility between diVerent EU labour markets. In other EU countries, a higher proportion of “temps” have long-term, quasi-permanent relationships with their employers, as firms attempt to side-step onerous obligations attached to permanent staV.

Chart 2: Part-time, temporary and self-employment (EU comparisons)

30

25

20

15

10 Percent of total employment

5

0 UK Germany France Italy EU-15

Part-time Temporary Self-employed (excluding agriculture)

Source: Eurostat (European Labour Force Survey - 2002)

Impact on labour market flexibility

48. Flexible markets, whether product, capital or labour markets, enable firms and individuals to adapt to rapid technological progress and strong competition in global markets, and the economy to sustain high rates of productivity growth and employment. The Government has published two reports reviewing measures to enhance the ability of the economy to adjust rapidly to changes in the economic environment, along side the 2003 Pre Budget Report and 2004 Budget.

49 OECD (2002b) Employment Outlook. 50 This unemployment rate is termed the non-accelarating inflation rate of unemployment—or NAIRU for short. 3013721011 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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49. Building on the results of academic work51 into the institutional determinants of labour market performance, HM Treasury has recently developed an indicator of labour market flexibility.52 The indicator pools together the evidence on the institutional environment, thereby giving some indication of the sustainability of labour market outcomes and the progress of economic reform. It combines indicators which reflect the impact of the tax and benefit system, active labour market policies and labour market regulation, as well as union coverage and density, and the degree of union and employer co-ordination.

50. The chart below shows how the UK compares with other countries. The lower the indicator score the more flexible the economy.

Chart 3: An indicator of labour market flexibility

Indicator score 9

8

7

6

5

4

3

2

1

0 NZ UK Italy USA Swiz Spain Japan N’land Ireland France Austria Finland Norway Canada Sweden Belgium Portugal Australia Denmark Germany

Note: A lower value implies a more flexible institutional environment Source: HM Treasury

51. The results are consistent with a view that labour market institutions are less stringent in the UK than in continental Europe and suggests that the improved labour market performance observed in recent years, and reviewed in the section above, is well founded.

52. What the overall indicator cannot tell us is whether the UK economy has become more flexible over time. For this we need to look at the individual components of the indicator. Overall evidence suggests that the tax and benefit reforms introduced since 1997 have improved the flexibility of the UK labour market. These have reduced the unemployment trap53 and the tax wedge54, which was already low by international standards.

53. Evidence suggests that since 1997 active labour market policies in the UK have helped with the transition of those who are unemployed or inactive into work, have reduced the durations of their job searches and have had a positive impact on employment. However, there remain significant challenges around tackling persistent economic inactivity.

51 Blanchard O and Wolfers J (2000) The role of Shocks and Institutions in the Rise of European Unemployment: the Aggregate Evidence The Economic Journal 110 (March) C1-C33. 52 see HM Treasury (2003) EMU and labour market flexibility, HMSO. 53 An unemployment trap is where those without work find that the diVerence between in- and out-of-work incomes is too small to provide and incentive to take a job. 54 The tax wedge is the income tax plus employer and employee national insurance contributions, less cash benefits as a proportion of labour costs. 3013721011 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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54. Since 1997, the Government has introduced a framework of minimum standards which include the national minimum wage (NMW) and regulations on working time. Evidence shows that the NMW has been set at a level that has not reduced employment and the ability of the labour market to adjust to shocks.55 And where the working time regulations have had an impact on firms, this included an impetus to review working practices and so to “work smarter”, a raised profile for the importance of working time in worker health and safety and some increase in labour costs.56 55. The UK system of employment relations remains conducive to wage flexibility, and trade unions have a modern role to play in enhancing labour market flexibility and in delivering our social and economic goals. Indicators on trade union membership show some decline in union density since 1997 and the decentralised nature of collective bargaining in the United Kingdom has continued to mean that relative wages can adjust across industries, sectors and regions. 56. On balance the Government believes therefore that labour market flexibility has increased since 1997. This is consistent with findings of other research which showed that labour market flexibility, using a somewhat broader set of indicators, improved in all regions and countries of the UK over 1980s and 1990s.57 To extend academic research and data in this field, the DTI has recently commissioned ten research papers as part of its Labour Market Flexibility Small Grants Fund. We expect the results of this research to be available before the end of 2004. 57. The degree of flexibility and the ways in which that flexibility should be achieved are hard to judge and depend on the country in question. Flexibility in one direction can be counter-balanced against less flexibility in others. The recent strong performance of the UK labour market does, however, suggest that it is possible to combine flexibility and dynamism in the labour markets with minimum standards. Impact on working hours 58. There has been a reduction in long hours working since 1998, which follows a period when the proportion had been increasing continuously by small amounts.

55 See reports form the Low Pay Commission: weblink http://www.lowpay.gov.uk/lowpay/rep–a–p–index.shtml 56 Neathey F and Arrowsmith J (2001) Implementation of the Working Time Regulations Employment Relations Research Series no 11, Department of Trade and Industry URN 01/682. 57 see Monastris V. (2003) A panel of regional indicators of labour market flexibility: the UK, 1970–98 available at http://www.dti.gov.uk/er/emar/events.htm and speech by Alan Greenspan before the HM Treasury Enterprise Conference in January 2004, where he refers to the onset of greater flexibility in the US and UK in recent years see http://www.federalreserve.gov/BoardDocs/speeches/2004/20040126/default.htm 3013721011 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Chart 4

PROPORTION OF FULL TIME EMPLOYEES WHO USUALLY WORK OVER 48 HOURS PER WEEK

% 32 30 Men Women All 28 26 24 22 20 18 16

14 12 10 8 6 4 2 0 1984 1988 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Source: Spring Labour Force Surveys, not seasonally adjusted. 59. One in five (3.7 million) full time employees report that they “usually” work more than 48 hours a week. If asked in two consecutive quarters (to simulate 17 week period in the Working Time Directive) this drops to 14% (2.5 million). If asked over five quarters, the figure drops again to 9% (1.7 million). 60. Those who work over 48 hours a week are divided roughly into equal groups of: those who are paid overtime to do so, those who work long hours as part of their basic hours and those who are working unpaid overtime.

Impact on labour disputes 61. The number of stoppages for 2003 (133) was the lowest on record. It was around one fifth of the number in 1990, around one tenth of the number in 1980 and just 3% of the number of stoppages in 1970. 62. The 499,000 working days lost in 2003 was very low by historical standards, lower than the 1990s (annual average 660,000) and only a fraction of the working days lost in the 1980s (annual average 7.2 million) and the 1970s (annual average 12.9 million). 63. A time-series of the number of working days lost and the number of stoppages from 1970 to 2003 is shown in charts below. 3013721011 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Chart 5: Number of working days lost and stoppages

4,000 30m

3,500 25m

3,000

20m 2,500

2,000 15m

1,500 10m

1,000

5m 500

0 0m 1970 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003

Stoppages in progress (left hand scale) Working days lost (right hand scale)

Source: National Statistics

Impact on tribunal cases

64. The recent downward trend in Employment Tribunal applications was reversed in 2003–04 as they rose 16%, but the level remains 12% below the peak reached in 2000–01. The increase over the last year was caused primarily by more cases being brought under Working Time Regulations and sex discrimination laws. 65. The majority of applications fall in to three categories: unfair dismissal, unlawful deductions from wages, and discrimination, which over the last six years have averaged 37%, 19% and 19% respectively of all applications. 66. The number of applications associated with new employment rights and regulations has generally been relatively small. For example, national minimum wage applications have averaged 200 a year for the last three years, or 0.2% of all applications, whilst applications under the Part-Time Workers Regulations have averaged around 120 a year for the last three years, or 0.1% of all applications. Working Time Regulations applications have been more significant, averaging 1,800 or 1.6% of all applications in their first five years, before jumping to around 11,000, or 9.7% of all applications in 2003–04.58

ANNUAL EMPLOYMENT TRIBUNAL APPLICATIONS LAST FOUR YEARS AND SELECTED EARLIER YEARS*

Year Employment Tribunal applications 1988–89 29,304 1992–93 71,821 1998–99 92,120 2000–01 130,669 2001–02 112,227

58 Research into the reasons for the growth in employment tribunal applications in the 1990’s shows that the expected probability of winning a case, the amount of the award and the industrial structure and labour force compositions are of relevance. See Burgess S, Propper C and Wilson D (2001) Explaining the growth in the number of applications to industrial tribunals, 1972–97 Department of Trade and Industry, ERRS No 10 URN 00/624. 3013721012 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Year Employment Tribunal applications 2002–03 98,617 2003–04 115,042 Source: Employment Tribunal Service. * GB, not seasonally adjusted; Some statistics revised.

Looking to the Future

More evidence 67. While some initial findings are presented on the economic impact of the legislation, it is important to state the provisional nature of these conclusions. A more authoritative analysis will take considerable time. The findings of the next Workplace Employment Relations Survey which is currently in the field will make a step change in our understanding. It is important also to stress that much of the legislation is relatively recent and will take some time to bed down.

Helping business: compliance and best practice 68. The Government is working towards a significant increase in the number of business adopting policies and practice which foster high performance workplaces and which comply with employment regulations. Key to this is the provision of easily accessible information, advice and guidance about employment relations, whether on legal requirements and rights or about good practice. The www.businesslink.gov.uk website, with a highly developed interactive section on “employing people”, brings together information and transactions from across government and has enabled us for example, to bring regulatory obligations and good practice guidance from DTI, DWP, HSE, Inland Revenue and the Home OYce together in a simple step by step guide to recruitment tailored to the needs of individual users. It is aimed specifically at small businesses and is already attracting over 400,000 visitor sessions a month, over 30% above target. The Government is developing a similar service for employees, to be launched next Spring as part of the new citizens site www.Direct.gov.uk. 69. The Government is continuing to meet the needs of the public and business in more traditional ways. The DTI has for example produced and distributed information on employment rights in Portuguese to meet the needs of migrant workers. 70. As well as improving information and guidance, DTI is oVering practical help in employment “best practice” to all organisations and business wishing to find out how to improve their performance through better ways of working. DTI has already launched its package to implement best practice aimed primarily at smaller businesses which will be delivered by Business Links. The scheme is to be extended shortly to cover large businesses. DTI is also piloting a range of shared HR services for small companies unable to aVord dedicated HR staV to encourage a more professional approach to employment. 71. One area where things frequently go wrong is when some form of dispute occurs in the workplace. The Government therefore included regulations in the Employment Act 2002 to encourage better dispute management and is preparing a £1 million package of publicity, advice and guidance in preparation for these coming into force in October 2004. 72. In 2002–3 through its statutory duty to promote settlement of workplace disputes, Acas conciliated in over 95,000 individual and 1,353 collective disputes and ran over 2,000 events promoting good practice.59 It has also began to pilot a new approach to assist business through mediation and the provision of advice on an individual employment law issue by a third party. So far, small businesses have shown limited interest in mediation but the employment law visits have proved popular. The pilots are due to end in September 2004. The Government is currently looking at how to promote the use of alternative dispute resolution (such as mediation) by raising awareness of its benefits, removing barriers to its use and developing cost eVective ways to access it.

Future work and parent policies 73. A package of employment legislation came into force in April 2003 aimed at helping parents juggle their work and childcare responsibilities, in ways that suit employers. The implementation of the legislation was introduced alongside an awareness raising campaign that commenced six months prior to the law’s introduction and a support package that included guidance consisting of, summary flowcharts, standard letters, “How to. . .” hints and tips, case studies, web-based interactive guidance and ongoing helpline support.

59 See Acas Annual Report 2002, Facts and Figures, page 39. 3013721012 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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74. The Government committed itself when implementing the work and parent laws to make no further changes until after a review of their impact in 2006. To help shape the review and future policy the Government in Summer 2004 is running a series of Ministerial roundtable discussions between employers and employees. These aim to hear about how individual needs are balancing their caring and work responsibilities and facilitate dialogue to consider potential future options that meet both individuals and employers needs. In addition, the Government is holding a “Citizens Jury” to explore issues in more depth.

Annex A

MEASURES INTRODUCED SINCE 1997

Note: This Annex was updated in February 2005

Individual Employment Rights — Since 1 October 1998 the Working Time Regulations provide workers with the right not to work more than 48 hours per week, and a minimum of 4 weeks paid annual leave, daily weekly and in work rest periods and special protections for night workers and adolescent workers* (*protection extended from 6 April 2003). — The National Minimum Wage was introduced on 1 April 1999 and is currently £4.50 per hour. The rate for 18–21 year olds is currently £3.80 per hour. — Since 1 June 1999 the qualifying period for making a claim for unfair dismissal against an employer has been reduced from two years to one. — Protection for “Whistleblowers” came into force on 2 July 1999. — Agreements to waiver the right to claim unfair dismissal in fixed term contracts abolished from 25 October 1999. — Since 15 December 1999 qualifying period for additional maternity leave reduced from two years to one. — Since 15 December 1999 an employee who has worked continuously for an employer for a year has the right to take 13 weeks unpaid parental leave for each child born or adopted on or after 15 December 1999. On 10 January 2002 parental leave was extended to parents of all children under the age of five. The extension was backdated to cover children under the age of five at 15 December 1999 and those placed for adoption between 15 December 1994 and 14 December 1999. — Since 15 December 1999 all employees have the right to a reasonable amount of time oV in order to deal with emergencies involving a dependent. — Since 1 July 2000 part-time workers can no longer be treated less favourably than comparable full- time workers. — Since 4 September 2000 a worker attending a grievance or disciplinary hearing has the right to be accompanied by a colleague or a trade union oYcial. — Protection for employees on Fixed Term contracts came into force on 1 October 2002. — From 6 April 2003 parents of children under the age of six or parents of disabled children under the age of 18 have the right to apply to work flexibly. — From 6 April 2003 paid maternity leave increased to 26 weeks and unpaid maternity leave to 26 weeks, allowing a new mother to have up to a year oV in total. — From 6 April 2003 Standard Maternity Pay (SMP) increased to £100 per week. — From 6 April 2003 fathers have the right to two weeks paid paternity leave at the standard rate of SMP. — From 6 April 2003 adoptive parents have the right to paid adoption leave at the standard rate of SMP. — From 1 December 2003, protection against discrimination at work on grounds of sexual orientation. — From 2 December 2003, protection against discrimination at work on grounds of religion or belief. — From 6 April 2004, a package of new rights for temporary workers and responsibilities for employment agencies and businesses. — From 1 October 2004, statutory dispute resolution procedures and revised Employment Tribunal regulations. — From 1 October 2004, a new National Minimum Wage rate for 16–17 year olds and “fair piece” rates. 3013721012 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Collective Employment Rights and Trade Union Legislation — The Government restored trade union rights to GCHQ within 13 days of coming to power. — Deductions of trade union subscriptions from pay, or “check oV” regulations were simplified on 23 June 1998. — UK implementing regulations for the European Works Council Directive came into force on 15 January 2000. — Protections against unfair dismissal for employees taking part in lawfully organised industrial action came into eVect on 24 April 2000. — On 6 June 2000 statutory procedures for trade unions to obtain recognition in organisations with more than 20 employees came into eVect. — Law simplified and improved, including removal of requirement to name union members in notice of industrial action ballots on 18 September 2000.

Annex B

Note: This Annex was updated in February 2005

DETAILED BREAKDOWN OF THE GROSS COSTS TO EMPLOYERS OF EMPLOYMENT LEGISLATION IMPLEMENTED SINCE 1997

Measure Policy costs—annual Implementation costs— Implementation costs— recurring annual recurring one-oV Working Time Regulations Introduction of Working £2.5 billion £10 million Time Regulations Amendments to remove 13 £30 million £8.1 million week qualifying period (25 October 2001) Amendments to end opt- £24 million out from certain provisions of “The Young Workers Directive” (06/04/03) £100 million Changes to calculation of Night Hours Working Horizontal Amending £264 million, covered Directive (2003) in £2.5 billion above, except £81 million National Minimum Wage Introduction of National £1 billion (1) £2–3 million Minimum Wage NMW 2000 increases Nil (1) NMW 2001 increases £450 million (1) NMW 2002 increases Nil (1) NMW 2003 increases £180–400 million (2) NMW 2004 increases £344–614 million (2) (including new rate for 16–17 year olds) Fair Piece rates 2004 Nil £500,000 Employment Relations Act 1999 Trade union recognition £7.8 million Ordinary maternity leave £1.8 million from 14 to 18 weeks Reduced qualifying period £14 million for Additional maternity leave Time OV for domestic £6.8 million £0.066 million emergencies Right to be accompanied £2.3 million 3013721012 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Measure Policy costs—annual Implementation costs— Implementation costs— recurring annual recurring one-oV Employment Act 2002 Statutory Maternity Pay £25 million rate and length increases Equal Pay Questionnaire £0.2–0.4 million Union Learning £2 million Y1, rising £1 million Y1, Representatives to £26 million Y8 £3 million Y8 (3) Maternity Leave from 18 to £51–94 million £10–24 million 26 weeks Paternity Leave and Pay £23–39 million £7–13 million £10 million Adoption Leave and Pay £1–1.5 million £1 million Flexible working £290 million £6 million £34 million Maternity leave and Nil Nil Nil paternity, and adoption leave and pay—April 2004 amendments

Other legislation Reduction of qualifying £2.5–10 million £2.6–3.8 million period for unfair dismissal Parental Leave £42 million £0.08 million Extension of 1999 Parental £7–41 million, Y1–3; Leave Regulations £2–10 million Y4; £1–2 million thereafter European Works Councils £14 million (plus £8.4 £8.4 million million one-oV cost) Part time workers £27 million regulations Fixed Term Work £170–370 million £2 million Employment Equality £1.1–1.6 million Y1 £2 million £14 million (Sexual Orientation) rising to £28–39 million Y40 Employment Equality £2 million £14 million (Religion and Belief) Revision of regulations for £6.3–15 million £5.2–6.8 million the private recruitment industry Employment Tribunal none none Regulations 2004 Statutory Dispute £35–48 million £39–73 million Resolution Procedures

TOTALS £5.4–6.2 billion £31–38 million £140–190 million All costs quoted to two significant figures. (1) Revised downwards. (2) We expect this to be revised down when a new assessment is made. (3) Includes some policy costs.

The one-oV implementation costs total £140–190 million over the seven and a half years from May 1997 to October 2004. This gives annual one-oV implementation costs of £19–25 million.

Recurring policy costs £4.30 per employee-job per week and less than 1% of total UK wages and salaries. Ongoing annual implementation costs are under 3p per employee-job per week. 3013721013 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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APPENDIX 7

Memorandum submitted by the Engineering Employers’ Federation

Introduction

1. EEF has a membership of 6,000 manufacturing, engineering and technology-based businesses and represents the interests of manufacturing at all levels of government. Comprising 12 regional Associations, the Engineering Construction Industries Association (ECIA) and UK Steel, EEF is one of the UK’s leading providers of business services in health, safety and environment, employment relations and employment law, manufacturing performance, education, training and skills.

UK Employment Legislation

2. As the table in the attached Appendix shows, UK business has had to cope with managing the implementation of a considerable number of employment legislative measures in a relatively short period since the Labour Government came to power in May 1997. This table also shows that a further series of employment legislative measures are scheduled to be introduced over the next 12 months. 3. These are a combination of measures that have been driven by the Government’s own domestic agenda, such as the introduction of the National Minimum Wage and statutory trade union recognition, and the implementation of a series of European Directives covering working time, part-time and fixed term workers, European Works Councils and, very shortly, information and consultation of employees and age discrimination. In addition, we know that new European legislation on temporary agency workers and corporate restructuring, as well as reviews of the existing Directives on working time and European Works Councils, are high on the European Commission’s agenda with the European social partners (UNICE and the ETUC) currently being consulted by the Commission on possible changes to these Directives. 4. Unlike most of the previous Conservative administration’s employment legislative measures that largely sought to reduce the influence of the trade union movement in the workplace and did not directly aVect individual employers, many of the measures that have been introduced since May 1997 impact directly on the contractual employment relationship between employers and their employees. In particular, the introduction of a series of minimum employee rights on pay rates, hours of work, annual holidays, disciplinary and grievance procedures as well as various family friendly policies go to the very heart of this contractual employment relationship. 5. As a result, the introduction of these employment legislative measures has inevitably involved a considerable amount of management time in ensuring that their company’s human resources policies, procedures and practices comply with this new legislative environment. In addition, it has been necessary to ensure that all managers and supervisors are aware of these new employee rights so that the company is not exposed to potentially expensive and time-consuming Employment Tribunal claims. 6. This need to give increased management attention to the practical aspects of the implementation of employment legislation has therefore inevitably meant that less management time has been able to be spent on their other equally important responsibilities. These include improving the productivity performance of the business and developing new products, processes and markets.

Labour Market Flexibility

7. EEF acknowledges that the introduction of many of these employment legislative measures has not, in themselves, had a directly adverse impact on the flexibility of the UK labour market. It also considers that, if legislative measures on informing and consulting employees are implemented by the Government in a flexible manner, they have the potential to assist companies to improve their productivity performance. However, the need to implement such a large number of employment legislative measures over a relatively short period has inevitably had an impact on EEF members’ perception of the business environment in which they are now having to operate. 8. An illustration of the perceived impact of the ‘adjustment’ costs of these employment legislation measures is shown in the chart below that is taken from a recent EEF survey of 600 companies. It shows that, despite the higher levels of employment regulation in Germany and France, companies in these countries see employment regulation as being marginally positive for investment. By contrast, UK firms see employment regulation as having a negative impact on their investment plans. This suggests that the adjustment to higher levels of employment regulation is one factor that is deterring UK companies from increasing investment. 3013721013 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Chart 1

FACTORS AFFECTING INVESTMENT PLANS Mean score where 5%significant positive impact and 1%significant negative impact on level of investment planned for next 12 months

5.0

4.5

4.0

3.5

3.0

2.5

2.0

1.5

1.0 Strength of Level of Investment Grants Employment Skills of Gov'ment Employment markets corporate tax for regulation employees attitude to costs tax incentive investment manufacturing

UK Germany France

Source: EEF/NOP 2003 EU Productivity Survey

9. There is little doubt from the comments that are frequently made by EEF members that it is their perception that, since May 1997, they have had to operate in an increasingly more tightly regulated labour market which they regard, using somewhat loose terminology, as an indication of reduced labour market flexibility. This view is now being reinforced by their concerns that possible changes to the Working Time Directive, particularly the removal of the individual opt out from the average 48 hour working week, and the possible introduction of expensive and restrictive European legislation on temporary agency workers could have an adverse impact on the current flexibility of the UK labour market. 10. Labour market flexibility has a number of aspects and, as far as numerical flexibility is concerned, it is felt that the UK still remains in a relatively strong position in relation to many of its international competitors. However, EEF members are concerned that there is now an increasing danger that, unfortunately, this competitive advantage could gradually be being eroded due to a combination of the increasing trend for an element of labour market deregulation in some EU Member States and the possibility of additional European employment legislation.

Survey Evidence on Labour Market Flexibility 11. Hard data on labour market regulation is in short supply and the available data lacks the precision required to draw firm conclusions. That being said, two sets of data were analysed in EEF’s Report “Bridging the continental divide”. Firstly, data from the World Economic Forum (WEF) that is based on executive opinions shows that, on their measure of overall flexibility, the UK has improved between 1997 and 2001. This is largely due to a more positive assessment in the areas of unemployment insurance, wage setting and pay-productivity links. However, the WEF measure does show a worsening in the UK’s score in two areas—minimum wage regulation and ‘hiring and firing’ legislation. EEF does not oppose minimum wage regulations in general but does have some concerns about changes that will shortly be introduced by the Government in the second of these areas. 12. Secondly, OECD data on Employment Protection Legislation (EPL) shows that, between 1990 and 1998, the UK saw its advantage start to erode. However, this was due to reductions in EPLscores in 10 of the EU countries rather than an increase in the UK whose rating remained constant. 3013721013 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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13. The DTI’s “UK Productivity and Competitiveness Indicators 2003” uses more recent data from the International Institute for Management Development (IMD) survey evidence on business executive perceptions of labour market regulation. It shows that the UK has fallen from first place amongst the G7 in the 1996–97 survey to third place behind the US and Canada in 2002–03. Although the UK is not alone is seeing a worsening of its position over this period, the perceived deterioration was substantially greater than that in Japan, France and Germany. In addition, the ratings of the US and Italy have improved. As a consequence, it can be seen that the UK’s advantage has therefore been partially eroded since 1996–97.

Some Concluding Remarks 14. EEF recognises that some of the employment measures that have recently been introduced have had some benefits for business with, for example, family friendly legislation helping to encourage more women with young children to remain in the labour market. They have therefore helped employers to avoid losing the skills and experience that these employees have previously gained. 15. However, the implementation of these employment legislative measures has not been without cost to business as the various Regulatory Impact Assessments that have been undertaken by the Government clearly demonstrate. Moreover, the costs of implementing these legislative measures are much more apparent and transparent to individual companies than the rather more intangible benefits that may sometimes occur. 17 June 2004

Annex

UK EMPLOYMENT LEGISLATION INTRODUCED SINCE MAY 1997

Legislation Date in Force Main Components EU Legislation Public Interest The Act received Royal Introduction of protection againstNo Disclosure Act 1998 Assent in July 1998 dismissal or discrimination for with the substantive individuals who disclose provisions coming into information about certain kinds of eVect from July 1999. wrongdoing. Data Protection Act The Act received Royal The Act gives eVect to the EU Data Yes 1998 Assent in July 1998. Protection Directive and brought The main provisions most manual records within the were phased in with data protection rules. many of the significant provisions coming into force in October 2001. National Minimum The Act received Royal Establishing a National Minimum No Wage Act 1998 Assent in July 1998 and Wage. the associated Regulations came into eVect in April 1999. Working Time The Regulations were Regulations providing for Yes Regulations 1998 issued in July 1998 and maximum average weekly working came into eVect in of 48 hours, minimum rest periods October 1998. and four weeks’ paid holiday each year. Human Rights Act The Act received Royal The Act gives the statutory rights No 1998 Assent in November and freedoms guaranteed under the 1998 but did not come European Convention on Human into eVect until Rights. October 2000. Employment The Act received Royal Increased the limit for No Relations Act 1999 Assent in July 1999 compensation for unfair dismissal with the provisions from £12,000 to £50,000 (now phased in during 1999 £55,000) and introduced the and 2000. statutory procedure for recognition of trade unions and the right for employees to be accompanied at disciplinary and grievance hearings. 3013721014 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Legislation Date in Force Main Components EU Legislation Maternity and The Regulations came Changes to the maternity regime Yes Parental Leave into force in December together with the provision of 13 Regulations 1999. 1999. weeks’ unpaid parental leave for employees with at least one year’s service who have parental responsibility for a child. Transnational The Regulations on the The Regulations require certain Yes Information and introduction of transnational companies to Consultation of European Works establish mechanisms for informing Employees Councils came into and consulting employees at the Regulations 1999 eVect in January 2000. European level. Regulation of The Act came into Creates the oVence of unlawful No Investigatory Powers force in October 2000. interception of a telecommunication Act 2000 (subject to the Lawful Business Practice Regulations 2000). Part-time Workers The Regulations came Part-time workers have the right to Yes (Prevention of Less into eVect in July 2000. pro-rata treatment with a Favourable Treatment comparable full-time worker, unless Regulations) 2000 the employer can objectively justify the less favourable treatment. Sex Discrimination The Regulations came Allows applicants to pursue indirect Yes (Indirect into force in October discrimination claims by identifying Discrimination and 2001. a “provision, criterion or practice,” Burden of Proof) rather than a requirement or Regulations 2001 condition. Burden of proof is on the employer to prove it did not commit the act complained of, once an applicant establishes a prima facie case of discrimination. Maternity and The Regulations came The Regulations amend the Yes Parental Leave into force in January provisions relating to parental leave (Amendment) 2002. in the Maternity and Parental Regulations 2001 Leave Regulations 1999. Employment Act 2002 The Act received Royal The Act covers the following main Yes Assent in July 2002 areas: (1) family friendly issues— although its provisions which include changes to maternity are being being phased and parental leave, the introduction in during 2003 and of paternity and adoption leave and 2004. The family the right to request flexible working; friendly rights, (2) dispute resolution via statutory including the right to disciplinary and grievance request flexible procedures; (3) employment working, came into tribunal reform (4) new rights for force on 6 April 2003. union learning representatives; and The provisions dealing (5) introducing equal pay with dispute resolution questionnaires. will come into force in October 2004. Fixed-term Employees The Regulations came The Regulations aim to ensure that Yes (Prevention of Less into force in October those on fixed-term contracts Favourable Treatment) 2002. receive employment conditions that Regulations 2002 are no less favourable than those of a comparable permanent employee. Working Time The Regulations came The Regulations restrict the Yes (Amendment) into force in April working hours of young workers, Regulations 2002 2003. those over the minimumschool leaving age but under 18, to 8 hours a day and 40 hours a week. Maternity and Parental The Regulations came The most significant changes are the No Leave (Amendment) into force in November extension of ordinary maternity Regulations 2002 2002 but generally have leave from 18 to 26 weeks and the eVect only in relation extension of additional maternity to employeeswhose leave to end 26 weeks from the end expected week of of ordinary maternity leave. The 3013721015 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Legislation Date in Force Main Components EU Legislation childbirth began on or qualifying period for additional after 6 April 2003. maternity leave is reduced to 26 weeks at the beginning of the 14th week before the expected week of childbirth. Flexible Working The Regulations came The Regulations deal with the No (Eligibility, Complaints into force in April eligibility requirements of the and Remedies) 2003. statutory right to request a contract Regulations 2002 variation to change the terms and conditions of an employee’s contract of employment to allow for flexible working. Flexible Working The Regulations came The Regulations deal with the No (Procedural into force in April procedural requirements of the Requirements) 2003. statutory right to request a contract Regulations 2002 variation to change the terms and conditions of an employee’s contract of employment to allow for flexible working. Paternity and The Regulations came The Regulations relate to the new No Adoption Leave into force in December rights to paternity and adoption Regulations 2002 2002 but generally have leave provided for in the eVect only in relation Employment Act 2002. to childrenborn or adopted on or after 6 April 2003. Employment Equality These Regulations The Regulations make unlawful Yes (Religion or Belief) came into force on direct and indirect discrimination, Regulations 2003 2 December 2003. harassment and victimisation on the grounds of religion and belief, which includes religious beliefs and similar philosophical beliefs. Employment Equality The Regulations came The Regulations make unlawful Yes (Sexual Orientation) into force on direct and indirect discrimination, Regulations 2003 1 December 2003. harassment and victimisation on the grounds of sexual orientation. Working Time The Regulations came The main working time provisions Yes (Amendment) into force on 1 August are the average 48-hour working Regulations 2003 2003. week; four weeks’ paid annual holiday; rest breaks; health assessments for night workers; and an 8-hour limit on night working. In short, the Regulations extend the main working time provisions to most workers in the previously excluded sectors. Race Relations Act The Regulations came They amend the Race Relations Act Yes 1976 (Amendment) into force on 19 July 1976 (RRA), in accordance with the Regulations 2003 2003. EC Directive. In particular, they contain a revised definition of indirect discrimination and introduce a new definition of harassment. Equal Pay Act 1970 The Regulations came They amend the Equal Pay Act No (Amendment) into force on 19 July 1970 by providing for back pay to Regulations 2003 2003. be awarded for the period of six years before the day the proceedings were instituted. Sex Discrimination Act The Regulations came They make it unlawful to No 1975 (Amendment) into force on 19 July discriminate after the end of the Regulations 2003 2003. employment relationship by subjecting an employee to a detriment. 3013721015 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Legislation Date in Force Main Components EU Legislation Conduct of The Regulations will The Regulations govern the No Employment Agencies come into force on conduct of employment agencies and Employment 6 April 2004. and employment businesses. Businesses Regulations 2003 Employment Act 2002 The Regulations will The Regulations bring into eVect No (Dispute Resolution) come into force on the provisions of the Employment Regulations 2004 1 October 2004. Act 2002 which provide for dispute resolution via statutory disciplinary and grievance procedures. Disability The Regulations will The Regulations amend the No Discrimination Act come into force on Disability Discrimination Act 1995, 1995 (Amendment) 1 October 2004. in particular, by extending it to Regulations 2003 small businesses, expressly prohibiting harassment on he ground of disability and amending the rules on justification. National Minimum The Regulations will The Regulations will introduce a No Wage (Amendment) come into force on system of fair piece rates for output Regulations 1 October 2004. workers. Transfer of These Regulations are The Regulations will amend the Yes Undertakings expected during late TUPE Regulations and implement (Protection of 2004 or 2005. the EU Acquired Rights Directive. Employment) Amendment Regulations Age Discrimination These Regulations are The Regulations will implement the Yes Regulations expected to be finalised age discrimination aspects of the during late 2004 or EU Employment Directive. 2005 and will be implemented from October 2006. Information and These Regulations will These Regulations implement the Yes Consultation of come into force on a EU Directive on “Establishing a Employees Regulations phased basis between General Framework for Informing 2004 March 2005 and and Consulting Employees in the March 2008. European Community”.

APPENDIX 8

Memorandum by the Equal Opportunities Commission

Summary

This submission sets out the EOC response to the Trade and Industry Committee Inquiry into UK Employment Regulation. — The EOC believes that the achievement of gender equity has a major part to play in promoting labour market flexibility. By the year 2010 only a third of the work force will be white, male and under 45, so it is clearly in the interests of the economy as a whole that women as well as men should be able to reach their full potential in the labour market. A flexible labour market can enable them to do so. — Regulations aimed at providing for flexible working need to be backed up by information campaigns designed at raising awareness of employee’s rights, and, just as importantly, giving line managers the hands-on support they need to implement flexible working. In particular, more needs to be done to promote awareness of fathers’ rights to request to work flexibly. — We also believe that, while a regulatory framework helps organisations to get policies in place, the key to flexibility is an ongoing dialogue between employers and employees that enables them to reach a mutually satisfactory arrangement. 3013721016 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— We would like to see the development of a national skills strategy driven by a high-level alliance across government, to ensure a consistent approach from all relevant parties to tackling gender segregation in training and work, including opening up flexible working in all sectors and at all levels. — We very much welcome the Government’s pledge to open up the right to request to work flexibly to carers looking after disabled or older adults and would like to see this implemented as soon as possible. We would also like to see the right extended to parents of older children. — In the meantime we would like to see employers open up flexible working to other employees who also need to adjust their hours of work eg parents of older children and carers. — We support flexible employment as a means of encouraging older workers to remain in employment, or to return to work after taking time out to care for disabled or older adults. As with any group returning to work after a lengthy period of absence, flexible working will need to be backed up by specialist support and training opportunities. —EVorts need to be made to overcome long hours working, so as to decrease pressure on workers who are also carers, and enable them to continue to contribute to the economy.

Introduction 1. The Equal Opportunities Commission (EOC) is the statutory body for sex equality in Great Britain. The EOC welcomes the opportunity to submit evidence to the Trade and Industry Committee in respect of its inquiry into: — The contribution labour market flexibility makes to the UK economy. — Whether the current degree of flexibility is appropriate or desirable, and, if not, what measures the Government should take. 2. The EOC believes that the achievement of gender equity has a major part to play in promoting labour market flexibility. With women now making up half the workforce the position of women in the labour market has a major impact on UK productivity. 3. From the Government’s point of view three elements of labour markets are seen as particularly important for economic growth: an increased labour supply; flexibility so as to be able to adjust to new growth opportunities; and that “well-functioning labour markets reward workers according to their performance and skills”. While the achievement of gender equity is central to these three elements of economic growth it is still the case that both Government and employers remain of the view that gender equity is an “add on”, something to be pursued only after greater productivity has been achieved. 4. However, by the year 2010 only a third of the work force will be white, male and under 45, so it is clearly in the interests of the economy as a whole that women as well as men should be able to reach their full potential in the labour market. Future predictions show that the economy will need an extra 2 million people in the next 20 years, only a quarter of whom will be school leavers.

The Role of Employment Regulation in a Flexible Labour Market 5. Several pieces of employment legislation underpin the flexible labour market. For the purposes of this submission we are looking at the regulations providing parents with the right to request to work flexibly, the regulations protecting part-time workers against less favourable treatment, and the working time regulations, which set a maximum limit on how many hours people can work. All of these regulations are complex and awareness of them—amongst both employers and employees—is low. 6. While a regulatory framework can help to encourage the changes in practice that are conducive to an expansion of flexible working, the regulations need to be backed up by information campaigns designed at raising awareness of employee’s rights, and, just as importantly, giving line managers the hands-on support they need to implement flexible working. More eVective use of the existing provisions plus much more support and encouragement to employers would help a lot. The key to flexibility is an ongoing dialogue between employer and employee that enables them to reach a mutually satisfactory arrangement.

What We Mean by Flexible Working 7. For the purposes of this submission: — By flexible working we mean the ability of workers and employers to negotiate variations in working hours, times of work, work organization and place of work. — By part-time working we mean hours of work up to and including 30 hours a week. — By full-time working we mean hours of work in excess of 30 hours a week. — By long hours working we mean hours of work in excess of 48 hours a week. 3013721016 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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The Benefits of Flexible Working 8. Flexible working can: — Enable businesses to increase their productivity by improving recruitment and retention, reducing absenteeism and developing a positive relationship with their workforce. Those firms that have successfully introduced flexible working, such as Lloyds TSB and BT, stress that there is a solid business case for doing so.60 — Enable men and women to work in the jobs best suited to their skills and abilities. The UK labour market remains strongly gender segregated by sector, by occupation and by hours worked. This concentration of women and men into diVerent kinds of job, known as occupational segregation, is a key issue for government and employers in Britain today. It damages UK productivity by contributing to skills shortages and the gender pay gap. — Enable women to maintain continuity of employment after they have had a child. Despite almost 30 years of the right to return to work after maternity leave, a shortfall in childcare places, coupled with an absence of flexible working, mean that for many women the only way to return to work is to drop down into a less skilled, lower paid, but part-time job. — Facilitate a more equal sharing of caring responsibilities between men and women. Fathers are keen to play a more active role as parents, but rarely have access to flexible working. Mothers, fathers and carers need to be able to choose whether or not to combine caring with paid work and to get the support they need whatever choice they make. This means opening up access to flexible working for all parents and carers in all types of job. — Enable people caring for adult dependents to carry on working. There are three million working carers in the UK. 1.4 million women and 1.6 million men care for a disabled or older relative or friend. Many carers are forced to give up work due to a lack of flexible employment. — Enable older workers to carry on working in the years up to and beyond their normal retirement age. With fewer young people entering the labour market flexible working can provide employers with a means of retaining older workers.

Flexible and Part-time Working 9. Flexible working includes, but is not synonymous with part-time work. The two are often confused, with part-time work being seen as oVering a worker suYcient flexibility to enable a balance to be struck between work and home. While this may often be true, it is also true that many part-time workers often have little or no ability either to negotiate variations in their hours or patterns of work or to decline changes that are imposed on them. There is a need to ensure that part-time workers, just as much as those working full- time, are able to negotiate hours and patterns of work that enable them to balance work with caring responsibilities. 10. There is also evidence from part-time employees for a desire for more hours, not fewer. The TUC’s About Time report found that while over 10 million employees said that they would like to work shorter hours, over two million said that they need more paid working hours. Part-timers accounted for more than half of this group even though they constituted only a quarter of the employee workforce. While overall 8% of the workers in the survey said that they wanted to work longer hours in their current jobs, this rose for occupations with a large number of women working part time for low wages (eg 13% in personal services and 14% in both sales and customer services and “less skilled” occupations.61) 11. The very welcome improvements to the legal framework for employing part-time workers have served to mask the fact that the part-time work sector remains structured around its origins as a low-skilled and insecure segment of the labour market. Research commissioned for the EOC shows that women are more likely to enter part time work and are less likely to leave it. Women are not using part time jobs as stepping- stones into full time employment, but remain in part time employment for lengthy periods of time62. This not only contributes to the gender pay gap, but may also mean an increased reliance on benefits to top up income. Women working part-time are also less able to save for their retirement and often remain in jobs with poor pension provision, leading to a greater reliance on state benefits in retirement.

The Distribution of Flexible Working 12. An approach to the management of work that is based upon flexibility, rather than upon rigid divisions into full-time and part-time work would help to ensure that skilled women do not get trapped in low skilled, low paid part-time work on account of their caring responsibilities. However: — The distribution of flexible working across the economy is highly uneven. — Most flexible workers are women.

60 People Management 3 June 2003. 61 TUC, About Time, p6. 62 Career Paths of Part-Time Workers, EOC, forthcoming. 3013721016 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— Flexible working tends not to extend to middle and senior ranking managerial and professional posts. This makes it diYcult for women to maintain their labour market position once they have had a child. It also makes it diYcult for men to take on a greater share of responsibility for caring for their children. — There is evidence that many women, even when exercising the new right to request flexible working, move to a lower grade job when taking up the option to work flexibly. — There needs to be greater flexibility and accessibility within both the job market and childcare provision, to allow parents to co-ordinate work and family commitments.63

Occupational Segregation 13. Flexible working is more prevalent in sectors that employ a large proportion of women, such as retail finance, and relatively uncommon in sectors employing predominantly men, such as manufacturing. It is rarely available in senior jobs. The UK labour market remains strongly gender segregated by sector, by occupation and by hours worked. Women hold only 1% of construction jobs and 8% of engineering jobs, while almost all nursery nurses and childminders are female. 14. This gender segregation is both “horizontal” and “vertical”. Horizontal segregation presents a downward pressure on women’s labour market position by crowding women into female dominated occupations and limiting access to a broader range of male-dominated occupations and sectors of economic activity. Vertical segregation limits women to lower status jobs within occupational groups, restricting both their opportunities of higher paid employment and the pool of talent available to employers. Both these eVects are compounded by the concentration of part-time and flexible work options in female dominated occupations, and their absence elsewhere. 15. This concentration of women and men into diVerent kinds of job is a key issue for government and employers in Britain today. The EOC has recently published the interim findings of a major investigation into workforces that are divided along gender lines. The investigation focuses on Modern Apprenticeships but draws out wider lessons for employment and training in the UK.64 The investigation identified a correlation between skills shortages and under-representation of women in key sectors. This makes occupational segregation not just a “gender issue”, but also a barrier to addressing skills shortages and increasing the productivity and competitiveness of the economy as a whole. Recruiting from only one half of the population prevents women and men from working in the areas best suited to their skills and abilities and can only make it harder to increase overall productivity. 16. To redress this imbalance the EOC would like to see the development of a national skills strategy driven by a high-level alliance across government, to ensure a consistent approach from all relevant parties to tackling gender segregation in training and work. The strategy should incorporate eVective incentives for levering real change, including targets for measuring progress. While initially the strategy should focus on Modern Apprenticeships and vocational education the Government should look more widely, with the EOC and employers, at ways of tackling occupational segregation, including opening up flexible working in all sectors and at all levels. 17. Women’s occupational segregation is especially concentrated among those who are employed part- time, where the economics of supply and demand result in low pay. The average wage of a woman part time worker is £7.77 per hour, compared to the average male full time rate of £12.87 per hour65. For men, the higher the percentage of men in an occupation, the stronger is the tendency to work full-time or even longer hours. Women cluster in those occupations that allow some measure of flexible working—part-time working, term-time working and job-sharing. Extending flexible working to all sectors, in all sizes of organisation and all levels of seniority is key to breaking down occupational segregation and thereby helping to overcome skills shortages in those areas where women are significantly under-represented.

Maintaining Continuity of Employment 18. Anyone who has a period out of employment, for whatever reason, experiences diYculties when returning to it, but all too often women returning to the workplace after childbirth take lower skilled work in order to have some level of flexibility: “A significant proportion of women who take a break from the labour market suVer downward mobility on re-entry to the labour market after childbirth/care...The absence of part-time work throughout the economy means that some mothers will be working at levels beneath their qualifications”66

63 Talking About Childcare, Daycare Trust April 2004. 64 Plugging Britain’s skills gap: challenging gender segregation in training and work, EOC May 2004. 65 ONS (2003) New Earnings Survey 2003. 66 The impact of women’s position in the labour market on pay and implications for UK productivity, Walby & Olsen. WEU/ DTI, 2002. 3013721017 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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This tendency towards downward occupational mobility is particularly marked in the UK. Elsewhere in Europe women are better able to maintain their employment status when they become mothers and this is in part due to a greater willingness to make part-time working available in more senior posts. 19. In jobs where there is an expectation that full-time work involves working far in excess of contracted hours, it is even more diYcult for mothers to re-enter full-time work after maternity leave. The lackof flexible working options and the prevalence of excessive hours in managerial posts acts as a strong disincentive for women who are trying to balance work with family responsibilities to seek to progress and increase their earning capacity. It also undermines organisation’s ability to make the most eVective use of their human capital.

The Right to Request to Work Flexibly 20. The ability of parents to reach their full potential at work has been helped significantly by the new framework of parental rights that the Government has introduced. The EOC welcomes the new right and hopes that it will lead to an expansion of flexible and part-time work for mothers and fathers. We welcome the Government’s commitment to review the new right in 2006 to see how it is working. We would like to see the right extended to parents of older children. In the meantime we hope that employers will open up flexible working to other employees who also need to adjust their hours of work eg parents of older children and carers. 21. There is some evidence that the right is not working as eVectively as it could. In the period January to March 2004 the following issues were raised with the EOC: — Refusal of requested change of hours. — Refusal resulting in job loss. — Unfavourable treatment such as being told they were unsuitable for promotion because of their childcare responsibilities. — Job share problems such as being expected to find a replacement or revert to full-time work if job share partner leaves. — Policies not being promoted to fathers of young children. 22. In certain circumstances some of the above situations could amount to breaches of the Sex Discrimination Act eg excluding fathers from the option to request to work flexibly. Much more needs to be done to raise awareness of the right to request to work flexibly and of the benefits to both employers and employees of agreeing to this.

The Length of the Working Week 23. The length of the working week is also a key factor in enabling mothers and fathers, and carers generally, to balance work and family responsibilities. While working hours in the UK average around 38 hours, similar to the EU average,67 this headline figure disguises the significant polarisation, between full time and part time workers, and between men and women, that distinguishes the UK labour market from other EU countries. If the full time hours of UK workers are compared with other EU countries the UK far outstrips the EU average for the proportion of full time workers doing over 48 hours a week. According to the Spring 2002 quarter of the Labour Force Survey (LFS), 21% (3.8 million) of full-time employees reported usually working over 48 hours a week in the UK, this includes paid and unpaid overtime (equivalent to 16% of all employees). While 26% of full time male workers stated that they usually worked over 48 hours (compared with 10% across other member states), only 11% of full time female workers did so. More eVort needs to be made to overcome long hours working, so as to decrease pressure on workers who are also carers, and enable them to continue to contribute to the economy.

AMore Equal Sharing of Caring Responsibilities 24. More than 50% of parents have no access to flexible working, but while employers generally recognize the need of mothers for flexible working, the needs of fathers go largely unacknowledged. Twenty four per cent of workers work part-time and of these 82% are women. Whilst almost 50% of female part-time workers limit their hours as a result of their caring responsibilities, only 4.6% of male part-time workers do so68. The largest group of male part-time employees is aged under 25 and therefore least likely to be working part- time because of caring responsibilities.

67 Long hours working in the UK; a summary of statistical information, DTI, April 2003. 68 Advancing Women in the Workplace, Thewlis et al, Women & Equality Unit/ EOC 2004. 3013721017 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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25. Almost 40% of fathers routinely work more than 48 hours a week, compared to 6% of mothers69. Where mothers are working long hours surveys indicate that they still carry the burden for the main household and caring tasks.70 And where fathers work long hours, they are least likely to be involved in the care of their children.71 26. O’Brien and Shemilt’s reanalysis of the 2000 DfES Worklife Balance Survey found that while over 80% of fathers were generally happy with their worklife balance, this dropped to 60% for those working over 48 hours a week and 50% for those working 60 or more hours72. Excessive hours amongst men, and particularly fathers, cement the status quo on caring responsibilities and prevent parents in particular from balancing work and family life eVectively. 27. The type of flexibility that fathers would prefer is generally diVerent to the type of flexibility generally preferred by mothers. Both are keen to see a greater use of flexitime, but fathers are more likely to want flexibility of working hours over the day and week without a reduction in their salary, whereas mothers are more likely to opt for greater reductions in time with the inevitable drop in pay. This suggests that opening up flexible working to fathers might not be as diYcult or as costly as it might at fist sight appear to be. 28. However, fathers have reported to the EOC and to others that the fact that the right to request to work flexibly is open to fathers as well as to mothers is not widely known by either fathers or employers. More needs to be done to promoterawareness of fathers’ right to request to work flexibly Caring for adult dependents 29. There are currently 5.2 million carers in England and Wales, with 1.6 million of these providing at least some unpaid care to an older or disabled person, as well as working full-time. Projections indicate that more than one in 10 women in the next generation will at the age of 45 be simultaneously caring for both a parent and a child under 18. We very much welcome the Government’s pledge to open up the right to request to work flexibly to carers looking after disabled or older adults and would like to see this implemented as soon as possible.

Older Workers 30. Britain’s birth rate is falling but at the same time life expectancy is increasing and for the first time there are now more over-60s than under 16s in the population. There are moves towards later retirement ages or longer pension contribution periods, greater flexibility in retirement and a relaxation of the barriers to working while receiving a pension. The timing of retirement can be influenced by caring responsibilities. The 2001 census showed that more people in their 50s are carers than in any other age group, about 1 in 5. Older carers commitments are often hidden, with individuals less able to negotiate flexible working patterns with their health and personal life taking the toll, or leading them to leave paid employment. 31. Later retirement will not suit everyone and the ability to carry on working will depend upon an employee’s fitness and health. Encouraging flexible working may however, enable workers to remain attached to the labour force for longer, rather than going onto incapacity benefits prior to retirement. We support flexible employment as a means of encouraging older workers to remain in employment, or to return to work after taking time out to care for disabled or older adults. As with any group returning to work after a lengthy period of absence, flexible working will need to be backed up by specialist support and training opportunities.

The Impact of the Restricted Availability of Flexible Working 32. The majority of parents and carers would like to be in paid employment, but caring responsibilities and inflexible employers compound problems with accessing suitable and aVordable childcare or eldercare. Caring for children or for adult dependents is one of the most important jobs anyone can do, yet often parents and carers struggle to be able to balance caring with other responsibilities. Opening up opportunities for flexible working is one of the most eVective ways of providing parents and carers with the support they need. 33. The restricted availability of flexible working impacts on men and women in a number of ways: — The inability to work flexibly in higher paid posts impacts on the gender pay gap. Women still earn significantly less than men, especially where they work part-time (eg a low skilled woman with children will earn £0.5 million less in her life than her low skilled male partner73). Women’s lower earnings result in lower pensions: women’s average retirement income is only 57% of men’s.

69 Working Fathers—Earning and Caring, O’Brien and Shemilt, University of East Anglia, EOC 2003. 70 DTI working time research note, 2002. 71 Working Fathers—Earning and Caring, O’Brien and Shemilt, University of East Anglia, EOC 2003. 72 Working Fathers—Earning and Caring , O’Brien and Shemilt University of East Anglia, EOC 2003. 73 Women’s incomes over the lifetime, Rake k (ed), Women’s Unit 2000. 3013721017 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— Almost four in 10 mothers, more than one in 10 fathers and almost one in five carers have either given up or turned down a job because of their caring responsibilities74. The ability to negotiate variations in working hours, times of work, and so on, would enable many more people to remain in gainful employment while fulfilling their caring responsibilities. — Many fathers would like to be more involved in caring but are unable to be so because they think it is financially untenable, or their employer will not provide the flexibility they seek.

The Barriers to an Expansion of Flexible Working 34. The main barriers to an expansion of flexible working are: — Unfavourable perceptions of flexible working. Senior level employers fear that introducing flexible working will have an adverse eVect on profits, while at line management level many managers are unaware of, or sceptical of, the benefits of flexible working. Amongst workers there is a perception, particularly amongst men, that taking up flexible working will be detrimental to their career prospects. An EOC survey found that while around four in 10 workers say their boss would respond positively if they asked for flexible working arrangements, another four are not at all sure and a sixth say their boss would certainly not respond positively. — Improvements to the legal framework for employing part-time workers have served to mask the fact that the part-time work sector remains structured around its origins as a low-skilled and insecure segment of the labour market. — A failure to recognise the importance of continuity of employment in maintaining and improving human capital. Anyone who has a period out of employment, for whatever reason, experiences diYculties when returning to it. The unavailability of flexible working, coupled with the shortage of good quality, aVordable childcare means that for many women the only route back into employment is through part time work. — The impact of the domestic economy on the market economy goes largely unrecognised. More attention needs to be paid to building bridges between the domestic and market economies— childcare support, for example, is closely tied to employment and household status, yet if women are to maximise their contribution to the market economy, support needs to be extended to them while they are in education or training.

The Benefits of Opening Up Flexible Working 35. We consider that there would be considerable benefits to employers, employees and the economy to opening up flexible working at all levels, in all occupations, and in all sizes of business. These include: — Improvements in the UK’s ability to compete in the world economy. So long as women remain significantly disadvantaged in the workplace the UK economy will continue to miss out on their contribution. The loss of experience, investment in training, and talent from women forced into and then stuck in low skilled part time jobs is a waste to the economy as a whole. An expansion of flexible working would enable more women to work to their full potential. It would also allow parents more time with their children, giving them a better start in life and reducing antisocial behaviour. — Improved productivity. Businesses not using flexible working are cutting themselves oV from a large part of the working population. Skills shortages are already aVecting productivity and in some sectors have led to inflated wage costs. Absence levels are also a major cause of concern for UK employers. Flexible working practices can increase productivity by improving recruitment and retention and reducing absenteeism—recent research has found that organisations that have introduced flexible working have experienced reduced absenteeism, often as an unexpected bonus. — A better balance between work and home. With almost four in 10 mothers, more than one in 10 fathers and almost one in five carers having either given up or turned down a job because of their caring responsibilities the immediate benefits to parents and carers are obvious. In the longer term a labour market wherein all workers are able to negotiate variations in their hours and patterns of working will help to reduce the disadvantages experienced by those whose caring responsibilities make them liable to the perception that they are somehow less committed than other workers, or less able to reach their full potential. — An end to the demarcation between jobs for mothers and jobs for others. — Flexible working associated with flexible retirement would reduce the costs to the state of supporting parents and carers who have not been able to build up a suYcient pension to maintain them in their retirement. It would also enable older workers generally to carry on working.

74 EOC survey. 3013721017 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— A closing of the gender diVerences in lifetime earnings. We would expect to see a narrowing of the gender pay gap, especially in respect of the gap between those working part-time and those working full-time.

Conclusion 36. As female earning power is limited by the lack of career prospects and discrimination against part- time workers so gender stereotypes become more rigid. Mothers who want to, or need to, work are mostly forced onto the “Mummy track” as childcare responsibilities are seen as a sign of lack of commitment. And when there is not enough money to allow choice on how people manage the demands of work and home, it sets a pattern that perpetuates inequality in the workplace. We need organisations to accept they cannot make the most of the talent available unless they account for people’s caring responsibilities. The EOC will shortly be launching a general formal investigation into flexible and part-time work, which will make suggestions on how to tackle the barriers that prevent Britain’s economy from capitalising on parents’ and carers’ skills. Opening up opportunities—and equalizing pay—for flexible and part-time working will be key to providing Britain’s parents and carers with the support they need if people’s expectations are truly going to be met. June 2004

APPENDIX 9

Memorandum by The Federation of Small Businesses (FSB) 1. The Federation of Small Businesses is the UK’s leading non-party political lobbying group for UK small businesses existing to promote and protect the interests of all who own and/or manage their own businesses. With over 185,000 members, the FSB is also the largest organisation representing small and medium sized businesses in the UK. The FSB’s membership employs 1.25 million workers.

The Contribution Labour Market Flexibility makes to the UK Economy 2. The UK small and medium enterprise (SME) sector is of key importance to the UK economy. There are 3.8 million small businesses in the UK employing over 50% of the UK’s private sector workforce. Over 97% of firms in the UK employ less than 20 people. Small firms contribute over 50% to the UK GDP which in equates to £500 billion in monetary terms75. 3. The SME sector is responsible for 64% of all commercial innovations and large companies look to small niche businesses for research and development and supplies. The UK economy depends upon a fruitful partnership between large and small businesses. Indeed, small businesses produce large economies. 4. The UK has one of the most flexible labour markets in the EU, which has enabled the UK to be one of only three countries to exceed all three of the EU 2010 employment targets already76. As a consequence it is no coincidence that the UK has one of the healthiest economies in the EU, which, is strongly supported by the small business sector. 5. In the last five years, the UK was one of the few advanced economies that came close to matching the economic performance achieved by the United States. The UK’s growth rate of GDP per capita outpaced other European countries like Germany, France, Italy, and Sweden, and lagged only somewhat behind Australia, the United States, and the Netherlands. Only Ireland, Finland, and a number of European and Asian middle-income countries outpaced it significantly.77 6. The UK currently has one of the highest levels of labour force utilisation in the OECD. The UK lies ahead of the Continental European countries although behind only Japan and the United States. The UK has a lower unemployment rate than many peer countries, and working hours per employee in the UK again fall between US and Continental European levels. Labour productivity is often seen as the sole measure of economic performance. The success in integrating a larger share of the potential workforce into the economy is an important economic and social achievement which, the UK deserves credit for. However, there is no room for complacency because this is due in part to the substantial increase in employment in the public administrative sector. 7. Flexibility of the labour market determines the speed and ability of business to adapt to economic change. This is particularly necessary within the SME sector, which, by comparison to big business do not tend to have the same financial resources to weather significant economic changes and thereby rely on the labour market mechanism to maintain their profitability.

75 Small Business Service. 76 OECD Report. 77 UK Competitiveness: Moving to the next stage. Professor M Porter and Christain H M Ketels. May 2003. 3013721018 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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8. The UK economy has largely been able to endure the global downturn of the last three years better than peer countries because of this flexibility in the labour market. This is has been helped by the comparatively benign conditions which allow self employed and small (1–2 person) companies to start up. A major and important exception is the IR35 scheme. This reduces the ability of small businesses to compete with larger ones, and new businesses to compete with established ones. The flexibility which is the main advantage for small businesses is lost and some are strangled by this measure. A loss or reduction in labour market flexibility would have a significant impact in our ability to prosper in diYcult market situations.

Whether the current degree of flexibility is appropriate or desirable, and, if no, what measures the Government should take?

9. UK business has seen significant changes to employment law in recent years. Almost all these impose restriction on the freedom of contract and thus reduce flexibility. They have led, to a greater or lesser extent, to greatly increased paperwork, to wider jurisdiction of Tribunals, to more applications to Tribunals, to rising awards by Tribunals and thus to apprehension of trouble when considering to increase the staV of a small business. Small businesses have struggled to keep up with new and changing legislation. The diYculties have been demonstrated by the increase of approximately 40,000 applications to Tribunals since 1997 and a three-fold increase since the early 1990s78. The consequence is a massive use by our members of our employment law helpline. We attach the figures for in April 2004 (Annex A). It can be seen that a total of 5,186 questions were raised in that month and of these a whopping 1993 were concerned with actual or potential termination of employment problems. By breaking down the subject matter of calls received we are able to demonstrate the width of enquiry and those areas of regulation which give rise to the greatest problems. 10. The typical UK small business consists of an owner/manager (who generally works very long hours) who employs a few staV79. The resources of such businesses are generally focussed on meeting customer demand in the most eYcient and cost-eVective way. Expenditure for additional, administrative and support staV is not something small businesses can aVord. These tasks inevitably fall upon the owner/manager to undertake when not servicing customer demand thereby extending the hours worked. Hence small business owner/managers have struggled somewhat to cope with the changes to employment law. Employees in such businesses generally add benefit by their flexibility in relation to hours and duties undertaken. 11. Whilst the SME sector has adapted to take on the changes to employment legislation it is clear that they have reached saturation point in regard to the amount of employment law that they can take on board. A recent survey of FSB membership demonstrated that the number of businesses to provide all their staV with a contract of employment was only 40%. They must of course provide terms and conditions. A further 12% oVer contracts of employment to some of their staV80. This backs up anecdotal evidence which, suggests that a large number of small businesses consider employment law a daunting prospect which they prefer to avoid by not taking on extra permanent staV. 12. New forms of legislation such as the dispute resolution regulations will cause significant diYculties for small businesses, which, are likely to get caught out on matters of procedural error rather than actual wrong doing. Whilst we welcome the objective of the regulations we are unconvinced that they will address the objective and due to their overwhelming complexity may indeed lead to further complications at tribunal. We consider that Government must do all in its power to educate employers and employees on the new regulations and procedures. By contrast the SME sector have coped with the flexible working regulations that came into force in April 2003 under the Employment Act. These regulations reflect the current flexible practices that exist in most small businesses. We consider these regulations to have been well written granting fairness and flexibility to both the employer and employee respectively. 13. The FSB considers that claims for unfair dismissal set at one year are tolerable. We would not, however, like to see this qualifying period reduced. 14. In regard to the recent review of the Working Time Directive and the opt out from the 48 hour working week, small businesses need flexibility of the labour market to enable them to cope with the peaks and troughs experienced within the business cycle. For this reason the SME sector has welcomed the 48 hour opt out and the flexibility it gives business in enabling it to operate eYciently. Whilst extending the reference period from the current 17 weeks to 52 weeks would enable businesses to cope with the cyclical demands, we consider that this is still insuYcient to enable business to operate eVectively and meet the competitiveness goals as set out in the Lisbon agenda. Extra paperwork would be required of small businesses who choose to opt-out but nevertheless have to keep a record of employee hours over a year’s reference period.

78 Employment Tribunal Service. 79 Survey of the FSB membership demonstrated that the majority of members (57%) employ between one and four full-time staV. “Lifting the Barriers to Growth” 2004. 80 Federation of Small Businesses, “Lifting the Barriers to Growth” 2004. 3013721018 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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15. No evidence has as yet been provided as to the negative health eVects of the opt-out on UK workers compared to continental employees not working under the opt-out. The Commission and European Parliament view has been strongly influenced by the Barnard report which surprisingly did not consult with the Federation of Small Businesses or any other specific small business representative. No such report was commissioned in any other member state. The communication from the Commission has also been influenced by the social dialogue in which the FSB is not represented. A more appropriate way to give full eVect to the second recital of the Directive would be to have a small employer exemption for employers with less than 20 employees, with a right for such employees to opt in to the 48-hour working week.

16. Similarly our members would not wish to see the Agency Workers Directive implemented in a form that granted equal pay and conditions to temporary workers after 6 weeks. Whilst most businesses pay temporary staV the same or more than equivalent permanent staV they object to the unnecessary administrative complexity of oVering the same benefits such as pensions etc. and it is this factor that will deter them from using temporary agency workers. The directive as originally drafted would be a highly damaging for flexibility but the amendments made by the European Parliament are satisfactory. 17. Small businesses generally oVer more flexible working arrangements than big business because of the more informal atmosphere within a small business. It is for this reason that the SME sector has found the formalising of employment relations administratively burdensome. Rather than highlight specific pieces of legislation that have been particularly onerous on SMEs it is more accurate to say that the main obstacle has been the sheer amount and complexity of employment legislation. A recent FSB survey found that 60% of members were dissatisfied with the complexity of legislation, 59% with the volume, 46% with the rate of change, 55% with compliance costs and 54% with the interpretation of legislation81. These figures refer to legislation as a whole. 18. The FSB feels that no additional employment regulations are necessary bearing in mind the huge volume of forthcoming employment laws already in the pipe line which are shortly due to come into aVect namely: (a) Part III of the DDA 1995, removing the small business exemption (eVective 1.10.04). (b) The new statutory disciplinary procedures (eVective 1.10.04). (c) The new tribunal practice and procedure regulations (eVective 1.10.04). (d) The information and consultation directive (eVective 2005) which, will in due course apply to medium sized business. (e) Age discrimination legislation (eVective Dec 2006).

The government has already committed itself to implementing these regulations and without more, these will be a huge burden on SMEs. We very strongly feel that no further legislation is necessary.

19. The FSB considers that the way in which EU Directives concerning employment law come into force is most unsatisfactory. It originates in the so-called Social Dialogue in which the FSB is unrepresented. It is geared to the views and conditions of large businesses, to internationals and public sector trade unions. It frequently gives dispensations to collective agreements, which small businesses cannot take advantage of. Large businesses and public sector employers have substantial human resource departments which give them an increasing competitive advantage. The impact on small businesses, despite the eVorts of the FSB and other small business organisations, is usually ignored. Although the UK probably has the most flexible labour market in the EU, it has other global competitors who are more so. UK flexibility is inevitably reducing under the weight of legislation. Although much of this comes from the EU, Whitehall has a cultural tradition of gold-plating when transposing EU directives.

20. In conclusion, the flexibility of the UK labour market is one of our most important assets. Where practicable flexibility should be increased. The current degree is not appropriate because: (a) The legislation is too complex to administer. A major review should be undertaken in order to examine how it can be simplified. (b) The legislation is geared to large, frequently international businesses and public sector bodies. Inadequate consideration is given to its eVect on small businesses and their employees in the private sector. Small business exemptions should be applied where the legislation is inappropriate either to the mischief at which it is aimed or the needs of employers and employees alike. (c) The legislation changes too often. There is hardly a pause without a new or amended regulation, causing unproductive time wasting in understanding it, avoidable costs in implementing it, and mountains of paper and paperwork. All of which is demonstrated by the use made of our legal helpline.

81 Federation of Small Businesses, “Lifting the Barriers to Growth in UK Small Businesses, 2004”. 3013721019 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Annex

FSB CALL REPORT PERIOD FROM: 01/04/2004 to 30/04/2004

Category: Calls: Employment Age discrimination 4 Care standards issues 5 Children & Young Persons 15 Constructive dismissal 66 Contracts of Employment 986 Data protection 13 Directors 8 Disability discrimination 83 Disciplinary action 1,258 Dismissal 282 Employers liability 55 Employment status 180 Equal Pay 3 ET claims and procedures 125 Fixed term contracts 3 Flexible working 17 General 32 Grievances 96 Health & Safety 48 Holiday queries 181 Immigration and work permits 18 Incapacity 266 Information and consultation 6 Lay-oVs12 Left message 239 Maternity 107 Minimum Wage 28 Mobility 1 New Legislation 9 Non-employment 88 Parental leave and family 17 Part-time workers 8 Paternity and adoption leave 11 Pensions 6 Performance reviews 31 Race discrimination 3 Recruitment 8 Redundancy 407 References 14 Restrictive covenants 16 Retirement 10 Sex discrimination 22 SSP 110 Tax query 13 Temporary and agency workers 3 Trade Unions 2 TUPE 102 Unfair dismissal 58 Wages claims 45 Working Time Regulations 44 Wrongful dismissal 22 Totals: Employment 5,186 3013721020 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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APPENDIX 10

Memorandum by the Graphical Paper & Media Union

THE GPMU’s EXPERIENCE OF UNION AVOIDANCE AND UNFAIR LABOUR PRACTICES

Introduction The GPMU supports the TUC submission made to the Committee on Employment Regulation which, in line with the terms of reference of the Committee, is much more general. This submission is intended to complement that of the TUC by drawing attention to specific concerns that the GPMU has in regard the actions of some companies who are hostile to any idea of trade union recognition. Since June 2000 when the recognition procedure introduced by the Employment Relations Act 1999 was brought into force the GPMU has managed to achieve recognition in over 120 work places. The vast majority of these agreements have been reached by voluntary means, or with the assistance of ACAS. In addition the GPMU has a detailed knowledge of CAC procedures, which we have had to use on a number of occasions. Arising from this involvement we also have experiences of union avoidance and anti-union tactics and campaigns used by employers in order to pressurise their workers against joining a union, or securing union rights at work and otherwise thwart legitimate union organising campaigns, where workers have freely chosen to join our union and wish to negotiate with their employers the right to union representation and collective bargaining at the workplace. We have seen at first hand how employers use US styled union avoidance practices to deny workers a voice in the workplace and how they have not only aVected the GPMU as a union but have been very detrimental to individuals who have suVered stress, through both intimidation and loss of job just for trying to uphold their rights to be represented by a trade union. The provisions of the current Employment Relations Bill will address in part some of these issues; the clauses that cover co-operation with the ballot; reasonable access; the outlawing of inducements to workers not to attend access meetings; the outlawing of coercion of workers to disclose how they voted; dismissing or threatening to dismiss workers; and the use of undue influence. However, it will be down to the Secretary of State to outline what the penalties will be for breaking the new law for these unfair practices. The GPMU wants to put on record to the Trade and Industry Committee its experience on the ground and therefore stress the importance of making sure that the practices used by the companies listed below do not go unchecked. The GPMU also makes some further proposals that should inhibit such practices in the future. Many of the union avoidance techniques currently being used in the UK emanate from the USA. Some of these tactics are listed below:

Typical Anti-union Tactics Experienced by The GPMU are: — The threat of closure of the plant/business or part of it, if the union gets recognition including moving work to another part of the country or to another country. — Individual job loss threats. — Actual sacking of trade union representatives and activists. — Pay and promotion inducements for those who denounce the union either openly or working against the union or simply by not joining. — Holding a company ballot in advance of an independently conducted ballot. — Complete denial of any access to a union including preventing leaflets being given to the employees. — Holding anti-union meetings at the workplace. — One on one meetings, lead by supervisors who are given the task of breaking union organisation in their department, sometimes with their own employment under threat. — Proposing changing to the bargaining unit—either splitting it or combining with it with others of diVerent trades. The second part of this document will provide the Committee with examples of how these tactics have been used against the GPMU. The final part will concentrate on measures, further to those in the Employment Relations Bill currently going through Parliament, that the GPMU believes should be taken to prevent anti-trade union practices taking place. 3013721020 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Examples

Newspapers The Daily Mail and Trust Group (NorthcliVe Newspapers) are a large national company with many sites across the UK. The GPMU along with the NUJ have members in many of these sites. They steadfastly use union avoidance and anti union techniques to deny their employees union recognition and discourage union membership. As a result of GPMU activities through the involvement of lay members at the place of their employment, the company have initiated and carried out a systematic anti union campaign on at site level orchestrated at group level. There are a number of examples of anti-union practice within NorthcliVe Newspapers and some are set out below.

Stoke Sentinel Although the company de-recognised the union in the late 1980’s many employees kept their union membership. However, union members were put under continued pressure to withdraw from union membership. In February 2000 a leading GPMU lay representative was dismissed, and another was made compulsory redundant, we believe to “set an example” to other workers. GPMU members were concerned about being overlooked for promotion/better jobs and many felt that their jobs were at risk if they continued to be members of the union. When the GPMU applied to the CAC for union recognition the company immediately set up a staV association. Our members were then bombarded with anti-union material, and put under continual individual pressures from the company to withdraw from union membership. They were told that GPMU recognition would result in the loss of contract work because customers would not place contracts with a union recognised plant and that future investment would not happen. Our members were also informed by the company that if they voted for GPMU recognition, a decision would be taken at group level to close the plant and move the work to one of the other Daily Mail sites where there was no union involvement. We did hold a ballot under the auspices of ACAS, but because of the anti-union actions by the company we lost the ballot.

The Printworks (Gloucester) Ltd At the same time as the GPMU was making an application to CAC for union recognition, the senior shop floor representative who was canvassing union support within the workplace, was dismissed. This representative subsequently won an employment tribunal award for unfair dismissal on the grounds of trade union activity. The MD and his management staV continually intimidated the workforce in an attempt to pressure them into not joining the union. Workers had to fill in questionnaires asking if they were members of the union. Those that were union members were then “invited” into the manager’s oYce and told that the company was prepared to make people redundant in order to keep the union out. When the case went before the CAC panel the company produced 13 letters signed by employees, who were also GPMU members, indicating that they did not support the GPMU claim for recognition, and were resigning their union membership. Five of these members subsequently wrote to the GPMU explaining how they had been coerced by the company into signing them. They were prepared for us to forward these letters to the CAC, however, because the CAC would be obliged to copy them to the company we decided not to. The GPMU subsequently lost the ballot for union recognition.

Swansea Evening Post The GPMU approached the company to discuss voluntary recognition and subsequently lodged a CAC claim. Our senior rep with a flawless work record was dismissed. Two women members said they were prepared to take on the union representative role. However they were subjected to continual intimidation and harassment and were forced to resign their union positions. Given the approach taken by the company and the experiences at Stoke and Gloucester we felt that we had no other option but to withdraw our CAC claim. 3013721021 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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West Country Design & Print In this case the company used promotion in an attempt to thwart union organising. When the GPMU submitted its CAC claim, the company promoted and increased the salaries of certain GPMU members and one of our key activists was oVered promotion and transfer to another site. Before the Admissibility Hearing with the CAC the company organised a petition against union recognition. They held a meeting of the workforce and also had one-to-one meetings with the workers, after which a number of GPMU members resigned their union membership and signed the petition. Our activists have also reported that one worker who was oV sick was visited at home so that they could sign the company petition. The company also produced pro-forma letters for the workers to sign. The company acknowledged that the letters were drawn-up by the company and they provided both the letters and the petition to the panel. The panel gave us the benefit of the doubt and declared the claim admissible. However we lost the Bargaining Unit decision and as a result of that decision and the company’s actions we withdrew the claim.

Bristol Evening Post & Press We have not at present submitted a recognition claim to the CAC for Bristol, but we are in the process of mapping the workplace and organising our campaign. The company has already created a climate of fear at the site, many of the workers that the union has had contact with tell the same story, “the company will get rid of you if you join the union”. The company has since closed one of the departments and announced a review of all sections, which has led to fear of job losses and resulted in a reduction in union activity within the plant. Most recently there has been a restructuring programme within the print department leading to redundancies and enhanced payments for our two main activists.

Commercial Printing and Packaging

Red Letter, Leeds Red Letter is a direct mailing company owned by the St Ives Group since 1997. Many, if not most, St Ives companies have a long history of collective bargaining with the GPMU and its predecessors. Red Letter, together with all other companies on the Bradford site was set up under the umbrella of Hunters Armley, Leeds, as non-union following the 1993 wages dispute. Many of the original managers were at the Bradford site as St Ives employees. During the campaign leading up to the access period, the GPMU’s only access to Red Letter employees was standing outside a site gate used by some 400 employees from six diVerent companies. Union members attempting to recruit inside advised us that they experienced constant harassment and we have examples of anti-union propaganda issued to members. A campaign of intimidation was carried out, mainly by supervisors, evidenced by two written and signed testimonies from two of our members. The first denies upgrading specifically on the basis of union membership; the second suggests job availability to an employee’s relative providing she drops her GPMU membership. Our representative, whilst being shown a room set aside for “surgeries” during the 20 day access period by the Human Resources Director and plant manager, was stopped in the corridor and asked whether “this was what she really wanted”. On replying “yes” she was told: “No XXX, is this really what you want”. Our rep would be prepared to make a statement to this aVect. Similarly, once the GPMU had been through the CAC process and succeeded in winning the ballot, the company asked those in the bargaining unit who didn’t want union collective bargaining to sign forms expressing that wish. Consequently, clause 2 of the final agreement identifying the bargaining unit carries the sentence: “Those employees who have elected to negotiate their terms and conditions of employment individually are not covered by the agreement”. Consequently, the concept of collective bargaining has been undermined.

Amazon.co.uk In April 2000, the GPMU approached Amazon with a view to gaining access to workers within the company. In June 2000 GPMU local oYcials met two HR managers who made it quite clear that Amazon would not be allowing the GPMU access to the workforce. In August that year the GPMU started leafleting Amazon workers from outside the company, which resulted in some workers joining the GPMU. Membership took oV in December that year and reached a peak of about 100 by March 2001 when the GPMU believed it was approaching the 50% level. Again we 3013721021 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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asked Amazon management to meet us. Press interest in this was growing and in the summer of 2001 the union met with Amazon management three times where they told us they were now willing to cooperate in a ballot of the workforce on union representation. Meanwhile back at the distribution depot Amazon’s anti-union machinery (based on the practices used by the company in the USA) was clicking into action. Besides pay rises and carefully selected promotions, there were also dismissals. In May and August our two most prominent union reps were sacked. The company then improved some conditions and took the first steps towards setting up a staV association. The company then held its own ballot denying GPMU any involvement or access to the workforce. Prior to the ballot taking place the management held interviews with each individual employee and meetings with groups of workers to ask why they needed a union and to make sure they were aware of the company’s views on union membership. In addition the company distributed a sample ballot paper to make it clear how employees should fill it in. On the day before the ballot the workers were issued with T-shirts bearing the words “Tell the GPMU yesterday’s gone” and “Vote NO”. Consequently the company won this ballot.

Europackaging UK Ltd. Euro-packaging Ltd employs over 200 people at its Birmingham Sparkbrook site, 175 are GPMU members. Urdu is the first language of many of them and some speak only Urdu. The GPMU sought to negotiate a voluntary recognition agreement but the company categorically refused. Then the company began to issue redundancies notices, which were predominantly targeted at trade union activists. Appeals hearings against dismissal were diYcult as the company refused translators other than company management. The company then began to move machinery to other sites and threatened a major redundancy program. The refusal to negotiate a recognition agreement with the GPMU and at the same time the bullying and intimidation of the employees by the company resulted in a ballot for industrial action. The ballot was carried with 131 votes in favor with one vote against. The company then threatened more redundancies and the possible closure of the Sparkbrook site unless workers returned to work and accepted all company ‘proposals’ without negotiation. They also brought in temporary workers to cover the work whilst the workforce was out on strike. The combination of the resolve of the workforce to remain solid in their industrial action and the supportive actions of the GPMU Parliamentary Group at Westminster made the company agree to negotiate a voluntary recognition agreement with the GPMU.

John Brown/Derry Print John Brown and Derry Print a commercial printers in Nottingham purporting to be two separate companies operating from the same premises. The employees were paid by the two diVerent companies, but they not only shared the same production area they also shared the same machines. The GPMU has a majority membership amongst the production workers. However, if they were treated as two companies separate companies they would have been below the 21 employee threshold and therefore would have fallen outside of the statutory recognition legislation. Also with the combined workforce we had over 50% of the bargaining unit and therefore a right to automatic recognition. The companies continued to maintain that they were completely separate organisations, however, the CAC concluded that the companies were “associated”. This is a case where almost each stage of the CAC procedure has been used, with the company failing to implement CAC decisions by simply ignoring them. The CAC wrote to both the company and the GPMU saying it would hold a hearing, but the company did not attend. The CAC decided to specify a legally binding bargaining method but the company did not respond. The GPMU has twice written to the company but they have not replied. The company has completely ignored the decision of the CAC and the only course of action open now is an application for contempt of court. This case has highlighted the loopholes that are open to companies that wish to frustrate the legislation.

Opasco Ltd. Crawley As soon as the GPMU started to recruit members at this company the employer began to threaten redundancies and allegedly threaten anyone who joined the union with violence. When the CAC case was lodged, the employer distributed a seven page anti-union document to the workforce. Although the GPMU was granted access meetings, the employees were warned not to go and were oVered time oV instead of attending the GPMU access meeting. 3013721022 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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During the postal ballot the employer attempted to collect ballot papers from people’s homes and delivered them to the ballot box. The GPMU subsequently lost the ballot.

Lonsdale Business Forms Following an organising campaign within this company GPMU membership reached over 60% of the relevant bargaining unit. The union approached the company to meet to discuss recognition and the company has refused. The company also begun their anti-union activities, threatening closure of the business and immediately prior to the ballot they wrote to all employees informing them that if the vote for recognition of the GPMU was carried, that Lonsdale would close the company.

Anson Packaging, Cambridgeshire. Whilst the GPMU was still building membership before lodging a CAC case, the company held its own ballot, giving no access or opportunity for the GPMU to put its case. The company unsurprisingly won the ballot and could have used the result in evidence to the CAC had we continued.

Rocor, Cambridgeshire. Similarly here the company held a ballot while we were building membership but denied us any access. The company won the ballot but the strength of our membership allowed us to finally reach a voluntary agreement.

RITRAMA (UK) LTD Ritrama (UK) Ltd is a manufacturer of ‘point of sale’ material for the retail industry. At the time of our recognition campaign the Chairman was Dr Len Evans who started the company. He subsequently sold it to a group based in Italy with plants elsewhere in Europe. He remained in situ at the Manchester plant and dealt with our claim for recognition throughout. Whilst there is much ‘anecdotal’ evidence of bullying and intimidation in the workplace, with ourselves only able to rebut accusations with our members whilst the non-members’ reasoning depended only on whether or not they took a leaflet from us, the only concrete evidence that can be supplied is that on the day of the ballot each employee received in the post a letter signed by the Italians Head of the Group implying that a vote for union recognition would necessitate a serious examination of investment policy in the UK, specifically the purchase of a £3 million machine.

Cromwell Press, Wiltshire. This is a typical example of the problems we encounter when trying to organise within companies. Each time the GPMU leafleted the workers, the manager would come out and shout at the organisers and try and ensure no leaflets were taken by his staV. Several times he called the police. He also warned staV that they would be sacked if they joined the union. Our members within this company have advised us that the level of fear in the workforce is at such a level that it would be impossible to win a recognition ballot.

Recommendations

1. Access during a ballot period The GPMU believes that access should not just be allowed during the ballot period but should be extended to allow the union access from the time that the application is accepted by the CAC panel. At the present time the employers have unrivalled access to the workforce to run Union avoidance and use unfair labour practices and campaigns.

2. “StaV Associations” At present an employer can reach a voluntary agreement with a staV association without any test of support, relating to any bargaining unit they chose, without any need to justify why they have chosen that particular bargaining unit. This would then block a recognition application by an independent trade union for all parts of the company covered. There is no provision for the agreement with the non-independent union to cover pay, hours and holidays, as there is under the statutory regulations for independent trade unions. As a result the staV association agreement could merely cover grievance and disciplinary issues. 3013721022 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Although there are provisions in the recognition legislation to have staV associations de-recognised, in practice these provisions are unusable. This is firstly because the employer determines the bargaining unit with no provision for challenge and because the application has to be made by an individual and cannot be made by an independent trade union. Employees could be risking their jobs if they attempted to pursue a claim of de-recognition. In addition there is no right for the trade union to have access to the employees during a de-recognition ballot. To date these provisions have not been used successfully.

3. Appropriate Bargaining Unit A requirement of the bargaining unit is the need for it to be “compatible witheVective management”. The GPMU experience is that in determining the bargaining unit; the employers attempt to widen the unit to include not only other categories of workers but also diVerent geographical sites. The sole aim in this approach by companies is to dilute union membership and support and is not related to eVective management.

4. Criteria used for ordering a ballot When the legislation was first being introduced, the trade unions were led to understand that where it was demonstrated that a union had 50%! membership there would be no requirement for a ballot. However following requests from the CBI additional qualifying conditions were inserted into the legislation. The GPMU believes that the government should repeal these conditions and where a trade union has the necessary 50%! this should be suYcient to grant recognition without a ballot.

5. Periods for Negotiation: 20 days should be reduced to 10 The schedule sets out periods of 20 days between panel decisions. The purpose of this time allowance is to facilitate the possibility of a voluntary agreement being reached either at the next stage of the claim or to conclude a voluntary agreement on recognition itself. While the GPMU acknowledges that the government may have genuinely felt that employers would in the spirit of the recognition legislation have used these time frames constructively, the GPMU experience is diVerent. The practice has been that the employers in many cases use these time frames and any extension that the CAC are prepared to give, to undermine the trade union application, to intimidate the workforce and enact anti-union activities. During this period the trade union has no access to the workplace and is unable to protect members against hostile actions of the employer. As a result of our experiences the GPMU calls on the government to limit the 20 day periods specified in the legislation to 10 days with extensions to be given only when both parties agree there is a genuine need for an extension. Our experience shows that if all the stages of the CAC procedures are used by a company to try and thwart a union recognition application the total time taken can be in excess of six months.

6. Re-admissibility test The GPMU is also concerned with time restraints imposed by the CAC when a re-admissibility test is required. We have been required during the course of seven days to increase membership and/or run a petition to show increased support, with no access to the workplace. However, at the same time the employer with full access to the workforce has run an anti-union campaign in order to undermine support and have the application invalidated. The GPMU does not consider either the time limit imposed or the lack of access and the pressure under which the employer put workers, to be acceptable.

7. The requirement of a 40% “yes” vote The GPMU believes that the 40% yes vote is an unnecessary and unfair requirement that is not used elsewhere. In all other elections known to the GPMU an abstention is treated as a non-vote not as a no vote. It cannot be determined that those who do not vote do not support the trade union claim.

8. Collective Bargaining Method Although the legislation imposes a collective bargaining procedure on the parties, the GPMU has found that some employers are unwilling to bargain in good faith. Employers attempt to undermine union recognition in a number of ways: — by refusing to negotiate; 3013721022 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— attempt to enforce diVerent pay bands and conditions; and — stating that the trade union can only negotiate at one point during the year; and that for the rest of the year the employers can change terms and conditions including pay. The GPMU has had experiences where there has been a need to return to the CAC for advice following an employer’s refusal to negotiate or discuss any of the three statutory issues. We believe these employers are biding their time, and will apply for de-recognition as soon as the legislation allows. In addition the GPMU believes that where statutory recognition has been awarded that training and pensions should be part of the statutory bargaining agreement.

9. Small businesses and trade union recognition The GPMU supports the submission made to the Committee by K D Ewing and Ann Hock “Employment Regulation, Small Businesses and Trade Union Recognition: A Two Tier Workforce”. This provides evidence that trade union recognition law should be extended to companies with fewer than 21 employees. The GPMU is in full agreement and supports the arguments put forward in this document.

APPENDIX 11

Memorandum by the National Group on Homeworking (NGH) and Oxfam GB’s UK Poverty Programme NGH and Oxfam would like to ask the Select Committee to consider the case of the employment status of UK homeworkers as part of its inquiry into employment regulation, and this submission sets out some of the issues that homeworkers face.82 In the UK, there are hundreds of thousands of homeworkers, or outworkers, who manufacture goods at home in the same way as other workers manufacture goods in a factory83. These workers, primarily women and many from an ethnic minority84, produce goods across many diVerent sectors, including textiles, printed and paper products, electronics, plastics and rubber, and undertake many diVerent tasks, including trimming, assembly, packing, machining, soldering and sewing. Homeworkers provide manufacturers and their suppliers and sub-contractors with a much more flexible labour force than an on-site factory labour force might. Manufacturers are able to draw on an army of workers when they have a tight deadline to meet, but often have no commitment to employing these individuals when order levels are low and there is no work. In the current global trading climate, in which producers are under enormous pressure from retailers to hold costs as low as possible, this flexibility is valuable in order to win orders. In some ways, this “flexible” employment can suit the worker, who often lacks alternatives to earn a livelihood. For example, she may have caring responsibilities that make working from home convenient. However, it is essential that these workers have equal access to the same protective employment rights aVorded to on-site workers to protect homeworkers (and other types of worker) from unscrupulous employers, given the competitive pressures in modern supply chains.85 Since October 2004, homeworkers have been entitled to the full level of National Minimum Wage (NMW) for their work, even if, as is usually the case, they are paid by the number of pieces produced. The new rules require employers to show, by means of time and motion studies (or other tests) that a fair piece rate system is in place and therefore should be able to show how their homeworkers are able to earn the NMW for the hours worked. However, NGH and Oxfam believe that it is unlikely at present that many of homeworkers will dare to claim their entitlement to the NMW. Homeworkers are not necessarily classified as employees of the company, which supplies their work. In a recent case, homeworkers who trim rubber products in Hampshire had been dismissed as a result of asserting their statutory right to be paid the NMW. An Employment Appeal Tribunal ruled in September

82 This submission is based on chapter 3 of the briefing paper Made at Home, published in May 2004 and co-produced by Oxfam, NGH and the TUC http://www.oxfam.org.uk/what—we—do/issues/trade/bp63—homeworkers.htm 83 NGH estimate that there are possibly over a million homeworkers in the UK, and the DTI estimate that over 100,000, at least, are entitled to the National Minimum Wage. 84 Adequate statistics are not available about the ratio of men and women undertaking homework. Research suggests that up to 10% of homeworkers may be men (Huws 1994: 4 and Felstead et al., 1996: 91). Enquiries to NGH’s advice line suggests that the number of men carrying out homework may be growing, particularly in areas of industrial decline (for example, in South Wales) and in rural areas, where there is little alternative employment and lack of transport. There are also problems with statistics on ethnic minority homeworkers. It is likely that the figures provided by Huws of 46% (Huws 1994: 5) and Felstead of 54% (Felstead 1996: 91) are too high, due to their sampling procedures, which focused on urban areas with high ethnic minority populations. Ethnic minority homeworkers are also more likely than the rest of the population to work in manufacturing homework. For example, Labour Force Survey statistics suggest that in 1994 approximately 70% of female Pakistani and Bangladeshi homeworkers were involved in the production of textiles, clothing, and footwear. The remaining 30% are engaged in other craft-related occupations (Felstead and Jewson 2000: 79). In Australia, homeworkers are often Vietnamese women, and in India they are often women from Muslim minorities. 85 For more details about these pressures, see “Trading Away our Rights” published by Oxfam in February 2004. http:// www.oxfam.org.uk/what–we–do/issues/trade/trading–rightts.htm 3013721023 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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2004 that they should not be considered to be employees86. As a result the homeworkers who had all worked for the company for over five years were not then able to make a claim for unfair dismissal and/or redundancy. When the NMW came into force, many workers, such as these, who had previously worked under a verbal contract, had to sign a written contract. In their written contract, the Hampshire homeworkers’ employer deemed that the homeworkers were casual, self-employed workers, despite some of them having worked for the same sole employer for over 10 years. The homeworkers signed the contract because they would have lost their work if they did not. As a result, homeworkers, who had successfully claimed their right to be paid the National Minimum Wage, had no legal comeback when their employer subsequently stopped giving them work, since, being “self-employed”, they could not have been made redundant or have been dismissed. Homeworkers, such as the Hampshire rubber trimmers, are not running their own businesses on their own account. They are being paid a wage for a task completed in their home under instruction by the company. Most do not have any other “employer”—in fact one of the Hampshire workers was asked by her employer not to take on any other paid employment87. They are integral to the company’s production line, making up a third of the company’s entire workforce, and they do not share in the profit of the company that they work for. The government has yet to decide how to respond to its consultation on employment status issues, undertaken over a year ago, which included the employment status of homeworkers. Unless the government changes the law to give homeworkers employment status, just as piece-rate workers in factories have employment status, the entitlement to the NMW will be meaningless for many homeworkers. Their employers know that they can continue to underpay their workers illegally because any worker who claims can be dropped from the payroll. We are asking the government urgently to address this anomaly. UK Poverty Programme Oxfam GB

APPENDIX 12

Memorandum by the National Outsourcing Association

1. Introduction This document contains the response of the National Outsourcing Association (“NOA”) to the House of Commons Trade and Industry Committee’s inquiry into UK employment regulation. The NOA is an organisation which represents the interests of businesses which have an interest in the outsourcing of services, including both businesses outsourcing certain of its functions (referred to in this paper as “transferors”), and the service providers which are engaged to provide those services (referred to in this paper as “new service providers”). The response is based on the following premises: (a) The competitiveness and eYciency of the UK economy is strengthened by the practice of outsourcing. Outsourcing assists undertakings in concentrating on the core areas of their business, whilst allowing third parties to provide non-core services (services which will often be the specialist function of that third party). (b) UK employment regulation should not unduly restrict or discourage the practice of outsourcing. (c) The aspect of UK employment regulation which has the greatest impact on outsourcing arrangements is the, so called, EC Acquired Rights Directive 77/1 87/EEC (“ARD”) as implemented in the UK by the Transfer of Undertakings (Protection of Employment) Regulations 1981 (“TUPE”). (d) It is accepted that the ARD and TUPE will continue to operate in some form similar to their current provisions, and that the UK Government is restricted from derogating from the requirements of the ARD. (e) The operation of TUPE has created many legal and practical problems and uncertainties. Those uncertainties create significant diYculties for undertakings when negotiating and executing an outsourcing arrangement. Those diYculties have the eVect of discouraging some undertakings from proceeding with outsourcing arrangements and create an inflexible workforce. Resolution of the problems, and clarification of the uncertainties, would improve flexibility in the context of outsourcing, which the NOA considers is beneficial to the eYciency and competitiveness of the UK economy. (f) This paper outlines some of the key practical problems and uncertainties and the NOA’s view as to how they may be addressed. (It is to be noted that the Government is in the process of revising the TUIPE regulations and it is possible that some, although not all, of the concerns outlined in this paper will be addressed by those amendments.)

86 Appeal No UKEAT/0150/04/DM. 87 In this case as a supermarket checkout assistant. 3013721024 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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2. The Application of TUPE to Outsourcing Arrangements One of the most significant diYculties facing undertakings considering an outsourcing arrangement is determining whether TUPE applies to the particular proposed outsourcing arrangements. If it does, all employees in the business being outsourced will transfer to the new service provider, if it does not, no employees will. The question is, therefore, often of fundamental importance to the nature of the arrangement, yet the answer is rarely categorically clear. The case law on the question has been inconsistent, often providing diVerent answers to factually similar scenarios, and oVering little assistance to undertakings when determining whether their proposed arrangements trigger TUPE. The NOA would greatly welcome certainty in this area. The Government issued, for the purposes of public consultation, proposals for the reform of TUPE in September 2001 following the amendment of the ARD. In those proposals, the Government sought views on providing for the blanket application of TUPE in all arrangements involving service provision change, subject to a small number of carve-outs. These proposals go much further than the ARD. The NOA does not consider that TUPE should be extended further than is required pursuant to the ARD. The NOA considers that a blanket application of TUPE to such situations would only be practical if, as the Government proposes, carve-outs are introduced. However, the NOA believe that the definition of the relevant carve outs will inevitably lead to further uncertainties and will not resolve the current diYculties which undertakings face. The NOA would encourage the Government to consider further, ways in which certainty can be achieved without extending the scope of TUPE.

3. Requirements to Provider Identical Terms and Conditions of Employment Under the ARD and TUPE, a new service provider is required to provide identical terms and conditions to employees who transfer to it under TUPE. In practice, it is simply not possible in some cases to do so and the lack of flexibility will often force a new service provider into a position where there is no option but to breach these requirements. The NOA would welcome guidance from the Government as to how it anticipates undertakings should deal with these very real problems, whilst complying with their legal obligations. The following are some examples: — Stock-related benefits. The provision of stock-related benefits, such as stock options and restrictive stock, to employees in the UK is commonplace. The value of those benefits is tied to the value of the employers’ business (reflected in their share value). The aim of the benefit is to tie the employees’ interest to the success of the employer, thereby motivating the employees to work towards the success of the employer’s business. When an employee transfers to the new service provider, it is neither practical nor sensible for the benefit to be continued to be tied to the transferor’s share value. In some cases the new service provider may have in place its own stock- related benefits that can be provided to the employee. However, such a replacement will constitute a breach of TUPE and give the employee the right to bring a claim for breach of contract. The provision of similar benefits is not suYcient under TUPE. In other cases, the new service provider may simply not have a mechanism to provide the same benefit. — Benefits provided through insurance schemes. A number of benefits commonly provided to employees are provided under insurance schemes provided by third parties, such as private health insurance and long-term disability insurance. Although often similar, the exact terms and conditions of the policy will vary. The only way of ensuring that the new service provider exactly replicates the benefits is to take out an identical policy. However, commonly the new service provider will have its own schemes in place and it would not be commercially viable to adopt a new policy for a limited number of staV, as well as the administrative ineYciencies of running additional policies. It is more sensible for an employee to join the new service provider’s existing schemes. The TUPE Regulations do not permit that to happen. — Bonus and Commission Schemes. Often, bonus and commission schemes will have provisions that tie the value of the benefit to the financial success of the employer in a particular period. It is impractical and makes little sense for the employee’s bonus following the transfer to be determined in accordance with the transferor’s performance, rather than the new service provider. However that will be the eVect of TUPE in many cases. — Collective Agreements. If an employee’s terms and conditions are determined by collective negotiation between a union and the transferor, it is possible (if that is a provision in the individual’s contract of employment), that following the transfer of employment to a new service provider, that the employee’s terms and conditions will continue to be negotiated between the union and the transferor, notwithstanding the fact that the transferor is no longer the employer. The result is that the new service provider has no control over the terms and conditions of its own employees. — Restrictive Covenants. Restrictive covenants create particular problems. Depending on the drafting of the particular restriction, it is possible that a restrictive covenant which was enforceable by the transferor against an employee, loses its enforceability upon transfer either because its construction does not make sense when interpreted in the light of the new circumstances, or 3013721024 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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because in the light of the new circumstances it becomes too wide to be enforceable under UK law. its construction makes no sense in the light of the transfer. Moreover, an attempt to agree new restrictive covenants with the employees following transfer will be void under TUPE as a variation to terms and conditions. Therefore, the new service provider can be left without any protection against competition and/or solicitation in respect of transferring employees.

4. Inability to Harmonise Terms and Conditions of Employment The NOA accepts that the ARD and TUPE aim to ensure that a transfer of a business in which they are employed does not detrimentally aVect an employee’s terms and conditions. In practice, a new service provider will often benefit from harmonising some or all terms and conditions of its employees, including those acquired under TUPE. The NOA respects the fact that an employer should not have the right to impose new terms and conditions on an employee unilaterally. However it is often the case that an employee is happy to consent to changes to their remuneration package. Often, the new service provider will propose that certain existing benefits are replaced with diVerent benefits that it already has in place, with no overall reduction in the value of the package. However, even if all parties consent to the changes, such changes are void under TUPE (although it may be the case under existing law it is possible to make such changes if the changes are for an economic, technical or organisational reason entailing changes in the workforce, but that will not often be the case and can raise other diYculties). The NOA considers that the parties should be free to make such changes if the parties are in agreement consistent with the fundamental concept of freedom of contract under UK contract law. If it is deemed necessary, there are ways in which the interests of the employees can be safeguarded, such as providing that the eVect of the changes must be clearly explained, and that the employer must be given a reasonable opportunity to consider this. The NOA welcomes the Government’s proposal to amend TUPE to make clear that changes which are made to an employee’s terms and conditions of employment for an economic, technical or organisational reason entailing changes in the workforce (an “ETO” reason) are valid. However, the meaning of the term “ETO” reason is uncertain, and almost certainly does not go far enough to permit a reasonable and sensible harmonisation.

5. Occupational Pension Schemes and Related Benefits TUPE does not currently apply to occupational pension schemes. The NOA would not welcome any extension of TUPE to cover such schemes. There have been a number of recent cases which indicate that certain subsidiary benefits often provided by an employer through the medium of a pension scheme policy, such as certain early-retirement and redundancy payments are covered by TUPE despite the fact that the underlying policy is not. That position appears to ignore the reality that the collection of benefits are provided as a package and that the component parts will not be commercially available separately to a new service provider at commercially viable rates. This is particularly the case in relation to early-retirement benefits: in practice it may be impossible for the new service provider to make appropriate provision. The cases are also unclear as to exactly which subsidiary benefits are covered by TUPE creating diYculties in complying with TUPE obligations. The NOA would welcome a legislative reversal of those cases or, at least, greater clarity, by way of Government guidance, as to what benefits are covered.

6. Statutory Indemnities Under the current TUPE Regulations, a new service provider that inherits employees as a result of TUPE also inherits all liabilities in respect of those employees. Often those liabilities will have been caused by the unlawful acts of the transferor such as: personal injury claims arising at work; breach of contract; unfair dismissal claims; and discrimination claims etc. The NOA respects the fact that TUPE strives to protect employees in these circumstances and does not propose reducing that protection. However, the allocation of liability between the transferor and the new service provider in such circumstances is often inequitable. Undertakings experienced in negotiating such arrangements will often address the issue in their contracts, whether by adjusting the price of the contract or by appropriate indemnities in the agreement. However, in many circumstances the parties will not do so, either because they are not suYciently well advised, or because they fail to identify that the arrangements trigger TUPE. 3013721025 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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In order to address that issue, the NOA would support the introduction of statutory indemnities, which would apply unless the parties agreed otherwise. The indemnities would provide that a new service provider would have a statutory right to bring a claim against a transferor in respect of any employment-related liabilities it inherits and which have arisen out of acts or omissions of the transferor prior to the date of transfer. It would be essential, however, that the parties have the ability to contract out of those indemnities and determine their own allocation of risk. The provision would act as a safety net rather than as a restriction on the parties’ ability to negotiate freely with each other.

7. Obligation to Inform and Consult Under TUPE, a transferor has an obligation to inform representatives of employees who will transfer as part of an outsourcing arrangement about certain details regarding the proposed transfer. In addition, the transferor has an obligation to consult with employee representatives about any transfer-related measures which the transferor or the new service provider envisage taking in respect of their employees. The existing TUPE regulations are not clear as to when such information and consultation should take place and determining the appropriate time often causes diYculties. The Regulations say that they should take place “long enough before a relevant transfer” to enable consultation to take place. A particular problem that arises in the UK is that since many employers in the UK do not already have formal information and consultation bodies set up, transferors need to undertake elections amongst all aVected employees in order to appoint appropriate representatives. Therefore, if the information and consultation obligations are triggered too early, the transferor must disclose the proposals to all potentially aVected employees despite the fact that the discussions are embryonic. In the early stages the commercial sensitivity of the proposals are significant and it is inconceivable that an employer will disclose the discussions. The employer is, therefore, forced to choose between not going ahead with a particular arrangement or breaching the information and consultation obligations. The NOA believe from its members’ experience that it is not in the employees’ best interests to know at too early a stage of the proposed arrangements. Many proposals do not ultimately proceed, and informing employee that it might, may cause considerable concern and unrest amongst employees. It is not uncommon for employees to suggest that they have been told too early since negotiations can often continue for many months if not for more than a year and the employees are left with the uncertainty concerning their own positions. The NOA would welcome greater certainty on this question, by way of Government guidance, as to the point at which the information and consultation obligations are triggered.

8. Transfer of Employee-related Data When parties enter commercial discussions about an outsourcing proposal, a new service provider will typically require information concerning the terms and conditions of those employees who will transfer to it if TUPE applies. The information is necessary in order to assess the cost of providing the services following the transfer and, therefore, to price the contract. It is not always possible or practical to provide that information about the employees in an anonymous form. If the transferor provides information about identifiable individuals, it will be in breach of the Data Protection Act 1998 (“DPA 1998”) if it is not possible to satisfy one of the pre-conditions to processing that data under Schedule 2 (Personal Data) or Schedule 3 (Sensitive Personal Data) to the DPA 1998. Providing “sensitive data” creates particular diYculties under the DPA 1998, albeit that it will be necessary to provide new service providers with some “sensitive data”, such as employees with health problems and who may be on sick leave, and employees in litigation over race or religion (which are “sensitive” for these purposes). Whilst, the transferor is permitted to transfer data (whether sensitive or not) if it obtains the explicit consent of each employee concerned, that is often not practicable because of the number of employees concerned and/or realistic because of the commercial sensitivity of the proposed arrangements. Schedules 2 and 3 of the DPA 1998 permit the transfer of data (whether sensitive or not) if the transferor has a legal right or obligation to provide it. The NOA would, therefore, support an amendment to TUPE which conferred on a potential transferor a legal right to provide to the new service provider such data as is necessary for the new service provider to assess the financial and other implications of inheriting the employees who would transfer to it from the transferor. For that information to be useful to the new service provider, the right should apply at any time during genuine negotiations.

9. Legal Obligation to Provide Information to a New Service Provider The Government, in its 2001 consultation paper, proposed imposing on a potential transferor an obligation to provide to the new service provider details of all rights and obligations which the transferor has in respect of the employees who will transfer. Whilst the NOA supports the introduction of the right for the transferor to provide the new service provider with such information (without incurring liability under the DPA 1998 as described in Paragraph 3 above), it considers that an obligation to provide details of all rights and obligations is unworkable. 3013721025 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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It is common commercial practice for a new service provider to undertake due diligence in relation to the employees it may inherit during the course of the commercial negotiations. However, the degree of due diligence which a new service provider considers necessary varies considerably depending on the nature of the arrangements proposed. It will not always be the case that a new service provider will require exhaustive details about such liabilities, either because the value of the deal lies in other aspects of the arrangements, because the workforce is minimal, or because the legal risk is covered by appropriate indemnities. The task of complying with such an obligation would often be considerable and would increase the need for legal involvement. It is to be noted that no such similar provision applies in respect of a sale of shares which involves similar acceptance of risks which a seller is not obliged to disclose (although would commonly do so as part of a due diligence exercise). In practice, parties to an outsourcing arrangement will commonly allocate pre- and post-transfer liabilities by way of indemnities into the outsourcing arrangements, minimising the need to have such information. To the extent that the Government remains committed to imposing such an obligation on a transferor, the NOA would strongly welcome the following features connected to the obligation: — specific details in the legislation detailing exactly which rights and obligations should be disclosed; and — a right for the parties to agree between them to opt-out of the obligations and/or to waive any liability for failure to comply with them.

10. Offshoring The NOA considers that, in certain circumstances, TUIPE may have extra-territorial eVect in that it may apply to the outsourcing of functions from the United Kingdom to other jurisdictions, either within the European Union or beyond (commonly referred to as “oVshoring”). The position is currently unclear. It is generally unrealistic to expect employees to transfer on mass to a new jurisdiction and the NOA believe that it was never intended that TUPE or the ARD would apply to such situations (as is the case in France and other EU jurisdictions). The NOA would welcome clarification, by way of Government guidance, that TUPE does not apply to outsourcing arrangements to jurisdictions outside of the United Kingdom. The NOA would strongly object to any new employment regulation which had theeVect of restricting the practice of oVshoring. 17 June 2004

APPENDIX 13

Memorandum by Popularis Ltd

EMPLOYMENT REGULATION, SMALL BUSINESSES AND TRADE UNION RECOGNITION: A NEW TWO-TIER WORKFORCE

Introduction 1. On 6 June 2000 the recognition procedure introduced by the Employment Relations Act 1999 was brought into force. The procedure has been very successful and has led to a significant number of new recognition agreements. A major concern for a number of trade unions, however, is that the procedure does not apply to employers who employ less than 21 workers. There is no comparable exclusion in either of the two previous statutory recognition procedures which operated in this country (in 1971 and 1975), and there is no comparable exclusion in any other major western democracy. 2. The small business exclusion has a number of consequences, not the least of which is that a large sector of the workforce is denied the right to trade union representation and the right to engage in collective bargaining. This in turn has a number of implications for a range of issues including gender pay discrimination, skills and training, and health and safety at work. Yet the small business sector is a sector which is growing, so that the impact of the small business exclusion is likely to grow, particularly in light of the government’s commitment to the expansion of the number of small businesses. Unless this exemption is removed, we will see the emergence of a new two—tier workforce: one to whom trade union recognition applies, and one to whom it does not. 3013721026 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Small Businesses and Employment Law 3. The idea of thresholds for employment rights is not new, though they have always been controversial by focusing on the position of the employer rather than the rights of the worker. The general rule has been that the law should apply equally to everyone, and that workers are entitled to the protection of the law regardless of the number of people they work beside. But although employment rights typically apply to small businesses, the small business is sector is characterised by low levels of trade union membership, low levels of trade union recognition, and low levels of collective bargaining coverage. 4. These low levels of worker representation are paralleled by what has been referred to as the “weak human resource policies, a high level of low pay and extensive use of dismissal as a disciplinary device” in small enterprises. Small businesses score badly on matters like low pay, equality policies, and some aspects of health and safety, with the “rate of fatal injury in small manufacturing workplaces . . . more than double those in medium and large workplaces” (HSC, 2001). Small businesses also score badly when it comes to employment tribunal applications, where the sector has been over—represented.

Small Businesses,Trade Union Recognition and Collective Bargaining 5. Trade union recognition is a precondition of free collective bargaining. The right to bargain collectively in turn is recognised as a human right by a number of international human rights treaties by which the United Kingdom is bound. These include ILO Convention 98, which provides by article 4 that Measures appropriate to national conditions shall be taken, where necessary, to encourage and promote the full development and utilisation of machinery for voluntary negotiation between employers or employers’ organisations and workers’ organisations, with a view to the regulation of terms and conditions of employment by means of collective agreements. There is no qualification which says “except in the case of small businesses” or “except in the case of employers employing fewer than 21 workers”. 6. The obvious implication of the small business exclusion is that more than a fifth of the labour force is denied the right to trade union recognition and representation unless their employer agrees. 24,695 million employees are employed by 1.2 million employers, and of these employees: — 1.6 million are employed by employers who have between 10 and 19 employees; — 1.5 million are employed by employers who have between 5 and 9 employees; and — 2.3 million employed by employers who have between 1 and 4 employees. 21.8% of the people employed are employed in businesses employing less than 20 employees.

Small Businesses and Women’s Rights 7. The importance of collective bargaining for women has recently been emphasised by the ILO in the following terms: The ability of women to exercise freely their rights to join trade unions and have their interests represented on a par with those of their male colleagues is vital to the achievement of both gender equality and trade union strength. Not only should women take their place at the negotiation table but gender issues will have to be made more explicit during the collective bargaining process to ensure that any agreement reflects the priorities an aspirations of both women and men. This concern that women should take their place at the bargaining table is undermined by the small business exemption in the statutory recognition procedure. This is partly for the obvious reason that women like men will be excluded from collective bargaining in a large number of cases. But it is also because the exemption bears harder on women than it does men. 8. The exclusion of small businesses from the trade union recognition procedure means that women are more likely than men to be denied the right to have their trade union recognised by their employer.

Table 1

MALE AND FEMALE EMPLOYMENT BY SIZE OF WORKPLACE (PERCENTAGES)

All males females No of employees: 1 to 19 28.9 26.2 31.7 20 to 24 4.9 4.6 5.2 25 to 49 14.6 13.7 15.6 50 to 249 24.8 27.1 22.3 250 to 499 9.3 10.2 8.4 3013721026 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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All males females No of employees: 500 or more 17.5 18.2 16.8 No. of employees 23,650,979 12,289,934 11,361,045 Source: Labour Force Survey Table 1 deals with the position in companies with 20 employees or less. It shows that female employment in small workplaces is higher than the average, and higher than male employment in small workplaces. However, it conceals the fact that there is a higher incidence of both female employment and small business employment in some sectors more than others.

The Gender Pay Gap and Collective Bargaining 9. A continuing problem faced by women workers in the United Kingdom is the gender pay gap which stubbornly refuses to close. Recent figures suggest that the gender pay gap in Britain is among the highest in Europe, at 19% for full time employees and 41% for part time employees. The EOC has identified a number of possible explanations for the position in the United Kingdom, despite almost 30 years of equal pay legislation. One explanation is the decline in collective bargaining coverage, so that less than 1 in 3 workplaces is now covered by a collective agreement. The exclusion of a quarter of the workforce from legislation giving workers the right to trade union recognition cannot but be significant. It is all the more significant for the fact that the trade union representation deficit is highest among the groups excluded, that is to say the small businesses. 10. But not only are women losing out on collective bargaining, they are also losing out on some of the legal rights which arise as a result of collective bargaining or which depend upon the trade union being recognised. These rights include: — the right to paid time oV for trade union duties and training in these duties, as well as the right to the disclosure of information about the undertaking; — the right to trade union representation on health and safety matters, important because trade union representatives are likely to have greater expertise and to have undergone training; and — the right to be consulted in the event of a business transfer, with trade union representation likely to be more eVective than representation by a fellow employee untrained for such a role. There is in addition to the foregoing the right to make use of the full services of union learning representatives who only have the right to time oV if their union is recognised. It is not clear why the government should assume that women are prepared to accept reduced access to skills and training opportunities.

The Practice Elsewhere 11. An examination of the position in other countries is striking for the fact that there is no parallel exclusion of workers in small firms from the coverage of workplace protection laws. All major industrial countries in Europe and beyond have legislation providing for some form of worker representation. So far as thresholds are concerned, some have no minimum threshold: one worker is enough. Some require two or more for the purpose of collective bargaining. Still others have a threshold before various forms of workplace representation must be established. But that threshold varies, and in no country is there an exclusion of workplaces employing as many as more than 20 people. 11. The position in selected countries is as follows: — In France it is compulsory to establish workers’ delegates in all enterprises employing at least eleven employees. — In Spain workers’ delegates must be established in enterprises employing more than 10 workers and enterprise committees must be established in enterprises employing 50 or more. — In Germany and Austria the duty to establish a works council applies in relation to enterprises with more than five employees, though it is for the employees to take the initiative to request the employer to establish a works council. — In The Netherlands, “a representative body of the employees has to be established if either the employer or the majority of the employees so wish” in enterprises with more than 10 employees. — In the United States, there is no minimum threshold of employees an employer must employ before an application is made for recognition (or certification as it is called there) under the statutory procedure. — In Canada the position varies from Province to Province. In two Provinces the threshold is two, and in another the Act applies only to employers who employ at least three employees. Otherwise there is no threshold. 3013721027 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— In New Zealand the position “based on the principle that employees who wish to bargain collectively are entitled to do so—presumably as long as there are two members employed by the employer”. — In Sweden a trade union has “the right to negotiate with an employer on matters which concern the relationship between the employer and such members of the union who are or have been employees of the employer”. One member is enough.

Support by the Small Business Service 13. British law on trade union representation is arbitrary, discriminatory, and irrational, as well as inconsistent with international law and out of step with the practice of other countries. So what is to be done? The first step that government could take to address the representation gap in small businesses would be to use its resources to bring to the attention of small businesses some of the benefits of collective bargaining. Although there is a large recognition gap in small businesses, it is often overlooked that there are many small businesses that do recognise a trade union.It is also overlooked that small business growth does not simply require entrepreneurs, but that it requires individual workers who are also prepared to make investments and take risks. There are steps that could be taken in the first instance without the need for legislation. 14. The Small Business Service ought to promote the interests of small businesses in a way that takes account of the interests of the employee as well as the entrepreneur, and in a way that has regard to government policy in other areas. These include fairness at work, pay equity between men and women, reducing the number of tribunal applications in an era of expanding employment rights, promoting the training of the workforce, and giving workers a voice in decision making. It is the responsibility of the SBS to remind employers of these policies and the diVerent ways by which they can be eVectively developed. A number of very simple steps could be taken in the first instance by the SBS to discharge what should be a duty to address the representation gap and the employment practices in small businesses. These include: — Investigation: conducting research into the performance of companies which recognise a trade union. Although there is a trade union representation gap in the small business sector, there are many small businesses which do conduct collective bargaining. Why do they do it, and what are the benefits? — Dissemination: publishing information about the results of research conducted about trade union representation in small businesses. This would include explaining the diVerent benefits to small businesses where there is a recognised trade union and collective bargaining. — Partnership: working with public authorities (such as ACAS), interested trade unions, and representative small business organisations to increase understanding and awareness of each others concerns, and to provide trade unions with an opportunity to explain their role.

The Need for Legislation Options for Change 15. In terms of government initiatives to deal with the representation gap in the small business sector, it is thus important to emphasise the role of government through agencies such as the Small Business Service. But even though there is much that could be done without changing the law, it is diYcult to escape from the fact that some kind of legal support will be necessary to underpin a serious trade union role in the small business sector. The most obvious solution would be to remove or reduce the threshold so that more workers would have access to the statutory recognition scheme. There are, however, other options which may also be pursued. Three “alternative” options to the repeal of the small business exception in the statutory procedure are as follows: — Converting the right to be accompanied on grievance and disciplinary matters into a right to be represented on all matters relating to the employment relationship. — Extending the range of existing national collective agreements so that they apply to all the workers employed in an industry including those in non union companies. — Removing statutory restraints so that contractors may contract with suppliers on terms that the latter recognise a trade union or observe collective agreements. 16. But although there are a number of options for addressing the small business exemption, they are not a full solution to the simple expedient of removing the exemption altogether. The case in favour of repealing the exclusion of small businesses from the statutory recognition procedure is a strong one. It is based on the following considerations: — The exclusion is arbitrary, diVerent from other small business privileges in employment law, without explanation or justification. — The exclusion is irrational in the sense that it reinforces poor employment practices and a high level of employment tribunal complaints from the small business sector. — The exclusion is contrary to the requirements set by minimum international standards, which are legal obligations binding upon the United Kingdom. 3013721027 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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— The exclusion runs contrary to the concerns of the ILO that steps should be taken to encourage rather than exclude collective bargaining in small companies. — The exclusion is discriminatory in its application in the sense that it denies women more than men the opportunity to engage in collective bargaining. — The exclusion has discriminatory implications in the sense that certain statutory rights are conditional on the employee’s union being recognised. — The exclusion has discriminatory implications in view of the fact that the gender pay gap is likely to be higher where there is no collective bargaining. — The exclusion has no parallel on the scale of the British legislation in the workplace representation laws of any other major country in Europe or North America.

About the Authors Keith Ewing is Professor of Public Law at King’s College, University of London. He is President of the Institute of Employment Rights. Anne Hock founded Popularis Ltd in December 2000. Popularis Ltd is named in Statutory Orders as Independent Scrutineer for the purposes of trades union ballots and elections, and as Qualified Person for the purposes of trades union recognition and de-recognition ballots. The information provided in this evidence has been taken from the report, “Trade Union Recognition is Small Enterprises” by KD Ewing and Anne Hock (c) Popularis Limited. The report was supported by the Trades Union Congress, and the unions Amicus, GPMU, KFAT and UNIFI.

APPENDIX 14

Memorandum by the Professional Contractors Group Limited

THE CONTRIBUTION LABOUR MARKET FLEXIBILITY MAKES TO THE UK ECONOMY

WHETHER THE CURRENT DEGREE OF FLEXIBILITY IS APPROPRIATE OR DESIRABLE AND IF NOT, WHAT MEASURES THE GOVERNMENT SHOULD TAKE

Introduction:Who is the PCG? The PCG was formed in 1999 to provide independent contractors and consultants with a representative voice. The group has developed, rapidly, to a full professional body, representing a wide range of freelancer interests. In 2003, the Group successfully achieved ISO9001 accreditation

Executive Summary Freelancers provide a flexible resource for industry and growth in the market outstripped predictions until recently. Regulation, both of an increased amount and, at times contradictory has taken its toll on the freelance market. As there is no Statutory Right to be Self-Employed, each Government department judges on its own how to treat them. This uncertainty has increased the burden of regulation. This can typically be shown in the way the Work Permit regulations are assessed diVerently when dealing with Freelancers than Permanent workers. Freelancers are expected to operate in the open market. This diVers to treatment by the tax authorities which has in the last few years sought to re-classify some self-employed and treat them, for tax as though they were employees. Another break on the use of freelancers has been the movement to oVshore. OVshore resources, although on first glance seem cheaper is not reflected in a true analysis of the overall cost of using them. In addition they are less flexible than freelancers as long-term relationships common to oVshore arrangements may not match the prevailing market conditions through the life of the contract. Freelancers need a reduction in the amount of regulation but what regulation there is must be consistent and a Statutory Right to be Self-Employed may indeed allow for those working in the market to know what there status is under various legal and tax issues. 3013721029 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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The Case for Freelancers 1. “A few smart leaders with a good pool of contractors can do a better job [with open source support tools] than IBM or any other outsourcing vendor can with its proprietary tools. That is because your IT department will better know your needs, and will have those needs at heart”— Robert X. Cringeley; Silicon Valley Commentator. 2. Freelancers are highly trained, motivated and experienced 3. PCG Survey Results88 3.1 50% had degrees 3.2 15% had a Masters 3.3 83% had undertaken specialist training 3.4 76% had ongoing training programmes which they self-financed. 4. Freelancers provide services in a number of sectors of which the UK is a leading contributor 4.1 IT 4.2 Financial Services 4.3 Interim Management and Management Consultancy 4.4 Oil and Gas 4.5 Telecommunications 4.6 Design 4.7 Publishing 4.8 Media 5. Freelancers; 5.1 Increase staYng flexibility 5.1.1 Freelancers are aware that they are always in a given position for a finite period of time. This means that industry can utilise their services as and when required. 5.2 Are of High Calibre 5.3 Assist in transferring knowledge to a client’s permanent staV 5.4 Are Cost EVective 5.4.1 31–51% increase over basic salary cost for permanent employees against 12–18% for a freelancer89 5.4.2 75% of Corporate Companies find freelancers cost less than equivalent permanent employees The Growth of the Freelance Market 1. In 2000 33% companies surveyed predicted they would be using freelancers; in 2001 51% of those surveyed, actually did89. 2. In his book 2010: A New Business Landscape Professor Richard Scase predicted that (by 2010) 40% of workers will have migrated to the freelancer sector. 3. Between 1979 and 2001 the number of professional and managerial workers who were self-employed grew by 300%. 4. Centre for Labour Market Studies Paper; The Changing place of work quotes an increase of 71% in Professional and Technical Home workers from 1992–200090.

Regulation 1. There is currently no statutory right to be self-employed. This means that the status of the self- employed freelancer is dependent on the treatment by various bodies from clients, to numerous government departments. Certainly among Freelancers there is a desire for some form of Right to be Self-employed. 2. The diVering treatment of freelancers by various groups means inevitably that they suVer the downside of treatment. For Example; 2.1 Under current Government Work Permit rules a foreign worker brought in under the various Visa schemes cannot replace a permanent employee. A Freelancer however is expected to operate within market conditions and can be replaced with impunity.

88 PCG Members Survey(s) taken during 2003. 89 London Business School Research undertaken during 2003. 90 Center for Labour Market Studies; The Changing Place Of Work. 3013721029 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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2.2 The Worker caught under IR35 working through an intermediary pays tax as if the entire income of the intermediary was a wage. However the same department considers the same company to be a business and has to not only pay Employee taxes but also those of employer, meaning that a freelancer working through an intermediary is nominally paying the highest tax rate of any worker in the country as they are the only ones responsible for both Employee and Employer taxes. 2.3 The DTI expects the same worker to have Employers Liability Insurance. In eVect a statutory requirement for the Incorporated Freelancer to Insure himself (or herself). 3. Increased Regulation is acting as a brake on a freelance business creating opportunities as the following two quotes indicate: 4.“The excessive amount of Employment Legislation is actually stopping my company growing because if I were to take on employees I would spend a disproportionate amount of time on regulatory issues rather than creating further employment opportunities.”—Freelance IT Consultant, Peterborough. 5. “We have hit the first limit—five full time employees. If we take on anyone else, even on a part time basis, a whole raft of further regulations apply to the businesses, ranging from Health and Safety, Environmental, Employment and Pensions. I would have to employ someone else full time to maintain the documentation”. 6. The varying treatment of freelancers is, in some instances, reducing the flexibility they may oVer clients. This is because tax inspectors are failing to diVerentiate between accepting new work from a client because they have to (ie they are controlled, and thereby employed) or because it makes perfectly good business sense. 7. 6.7% of PCG members have faced a PAYE investigation.88 8. Of those 40% went on to be IR35 investigations. 9. Over 99% of IR35 investigations, lasting from a few months to three years, ended in favour of the taxpayer when the taxpayer paid for Professional representation either directly or through some form of Professional Expertise Insurance.91 10. 83% of PCG members do not feel IR35 should apply to them. 11. Because the Inland Revenue has used the PAYE Compliance Visit to determine if a worker owes money under the Intermediaries legislation, the worker has no way of knowing having determined his status if he is to be investigated (and such investigations are increasing). Together with the need for complex legal advice this has meant many small IT Companies investing in tax investigation insurance. Like all insurance this must be purchased in advance.

How the Treatment of the IR35 Caught Freelancer is Adversely Affecting the Level of Skills Available 1. .Net (dot net) one of the top 10 most requested skills has gone through three versions in three years with a 4th due next year. On average Skills in IT have a lifetime of approximately two years. 2. 61% of PCG members would invest in more training if they could aVord it.92 3. 66% of PCG members consider training an important or essential part of their business. 4. As Training was not an allowable expense under IR35 this aVected the training spend of 47% of members. 5. The IR35 caught worker are the only workers in the country who cannot get tax free training. The Tax OYce consider it the responsibility of the workers “deemed” employer (the client), the client expects it to be the responsibility of their actual employer (the workers Limited Company. 6. Training costs for the caught worker are increased by the NI and Income tax paid on the cost of the training. This increase in cost equates to approx 40%–60% (Employers, and Employees National Insurance plus the Income tax paid on the turnover of the company).

How Offshoring is Damaging to the Freelance Market 1. Proponents including some Government Ministers have said that oVshoring jobs will create opportunities to create jobs in the UK. However (as an example) since 1986 net flows of capital between India and the US have been towards India. As OVshoring increases this can be illustrated by the relative levels of inward investment each country attracts as illustrated by the following table93;

88 PCG Members Survey(s) taken during 2003. 91 Taken from claimants under the PCG’s own Insurance products. 92 PCG Training Survey. 93 Published in The London Evening Standard 17 September 2003. 3013721029 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Country Previous Position Current Position China 1 1 United States 2 2 Mexico 9 3 Poland 11 4 Germany 4 5 India 15 6 United Kingdom 3 7 Russia 17 8 Brazil 13 9 Spain 7 10

2. Value of Inward Investment has dropped 60% from $62billion to $25billion. 3. According to Work Permits and foreign labour in the UK Labour Market Trends available from http://www.statistics.gov.uk/pdfdir/lmt1103.pdf Successful applications for Work Permits in 2002—129,000 Successful applications for Work Permits in 2001—115,80094 Total applications in 2002—155,200 This would mean 16.88% were refused or to put it another way you have a better than 4 out of 5 chance of getting a work permit approved. 4. Government policy treats the replacement of Freelancers diVerent to that of full time permanent employees. Work Permits consider it illegal to replace permanent workers but not freelancers. What this means is that utilisation of freelancers is going down as they are replaced by oVshore workers which overall will result in less investment coming to the UK. This can be demonstrated by the following chart95.

23512

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0 06 Sep 01 Apr 01 Nov 01 Jun 01 Jan 01 Aug 01 Feb 21 Nov 1999 2000 2000 2000 2002 2002 2003 2003

5. The above chart shows how opportunities have declined during much of the period when Work Permits were being granted at an increasing rate. This chart refers to both permanent and freelancer opportunities. Indeed it can be seen that the number of adverts declined from 16,000 (at any given point) to 4,000 in the two years 2002–03. A Period when 244,800 work permits were granted; 17% of them in Computer Services; (which would equate to 19,686 granted in the Computer Services).

94 Work Permits and foreign Labour in the UK Labour Market Trends available from http://www.statistics.gov.uk/pdfdir/lmt1103.pdf 95 http://www.jobstats.co.uk 3013721029 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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6. According to the following table94 the country that provides the highest number of work permit workers is India.

Country 1995 2002 USA 37% 11% Japan 10% Indians 21% South Africans 9% Australia & New 9% Zealand

7. However the biggest producer of Software is the United States, not India which has only recently started producing software. 8. There is considerable anecdotal evidence that workers brought in from out of the UK do not have the skills that are required and freelance workers are often asked to train foreign workers before having there own contracts terminated. 9. Western European companies wasted six billion Euro last year96 as a result of poorly structured IT outsourcing deals and badly managed relationships with their services providers, according to the Gartner Group. 10. Only 21.1% of companies reported a cost savings greater than 20% as a result of their IT outsourcing eVorts, according to a recent survey conducted by people3, a Gartner, Inc. company. Conversely, 18.4% of companies did not achieve any cost reductions, while 9.2% experienced an increase in costs from their IT outsourcing contracts. That equates to approximately twice as many people seeing higher costs or no actual saving against those saving 20% of a budget. 11. Examples of factors relating to additional costs include time and eVort spent during the transition period (on knowledge transfer, addressing cultural diVerences, putting infrastructure in place), disruption in the current work processes, increased turnover of IT employees who possess critical IT knowledge and skills, lost productivity, and lowered employee morale. All of those factors can erode and even exceed the potential cost savings from the outsourcing eVorts. 12. The number of board level executives who were satisfied with the business benefits derived from their outsourcing contracts reduced from 86% in 2001 to 50% in 2002. 13. Another problem with Outsourcing is it adds a layer of management. In any structure where layers are added, costs go up. Further the outsourcing company by its very nature will want to provide as little as possible for as much money as possible; after all it is responsible to its own shareholders! The client having sought to reduce their costs wants to have as much done for as little as possible. These two requirements are mutually exclusive. What this leads to is a slower reaction in the company and increased costs when market forces lead to changes not foreseen in negotiating the original outsourcing contract. 14. In creating an oVshore arrangement the extra level of management is created in the interface between work retained in the Western Company, and that sent abroad. The costs of this are of course related to the costs within the West, since that is where the interface must be created. 15. This interface also does not assist in increasing productivity. In fact like all such interfaces it reduces productivity since it makes no contribution to production. 16. The problem with oVshore software development is typically two-fold. In one sense, the oVshore developer’s cultural diVerences can’t relate very well to the foreign end-users (us), and that can lead to problems. But far worse is a problem that is almost the opposite: The oVshore coders are treated as just that—coders—with all architectural decisions being made 12,000 miles away. There is virtually no input to the architects from the coders because none is sought. That means problems that ought to be noticed early— and probably are, but oVshore, not the UK, are noticed too late. 17. The large IT companies think in terms of billable hours, and the way to maximize billable hours is by having lots of workers. Headcount is everything. 18. When Outsourcing companies send work abroad Profits will rise, but no head counts will drop. Head count will rise, in fact, because the heads are so much cheaper. Productivity for these oVshoring companies will not rise. It will fall. It will fall simply because of the added overhead to support those longer information supply lines. And service to customers will not improve at all. 19. The answer to IT productivity is to first decide who the customer is, and that isn’t the CIO, it is the CEO and the janitor and anyone in between with a computer. Once we all agree on who is the customer then purchasing decisions get easier. Truly useful products are bought when they are needed by customers.

94 Work Permits and foreign Labour in the UK Labour Market Trends available from http://www.statistics.gov.uk/pdfdir/lmt1103.pdf 96 Gartner Group Survey. 3013721029 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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20. Dr Adam Kolowa CEO of Parasoft Corporation, a software manufacturer located in Southern California was quoted97. 21. Kolawa said that there are four major issues—and their subsequent long-term consequences—that companies need to consider before deciding to oVshore any project: (lack of) quality assessment; real project costs; Intellectual Property (IP) concerns and loss of jobs in the U.S. Ignoring any of these, Kolawa said, could have devastating results. 22. “If companies continue to send projects oVshore, high paying technology jobs will be gone—an entire generation of highly educated and skilled workers will be lost. Who will teach the next generation?” asked Kolawa. “We will lose our place as leaders in innovation—we will lose all that we have created—to the short- sighted illusion of saving a few dollars.” 23. Kolawa said that it is a common misconception that oVshore projects are of higher quality than their domestic counterparts. “This is the claim of many companies which have bought heavily into this strategy.” Kolawa asked, “But does quality really go up in projects that are sent overseas? What are the criteria used for making such claims?” Without additional testing after the project is finished—an added expense—Kolawa believes that companies’ claims of higher quality production oVshore could simply be mythical. 24. The real costs of the outsourced project have to be calculated. Kolawa says, “Sure, your labour costs may have gone way down, but what did you spend on communication costs? What about transportation costs? Flying your staV over to consult and flying the consultants back to train your staV—those bills could be outrageous!” 25. Kolawa warned that there are other hidden costs involved with oVshoring. Perhaps the original specifications of a job were not followed and the project needs to be reworked or revised. Kolawa stressed, “The time you spend sending a project back overseas could cause you to incur delays and penalties which more than justify keeping production in the U.S.” Kolawa said there is yet another point to be considered. “What if you cut too much staV initially and have to quickly revise an oVshored project to meet a deadline. You cannot expect a new hire to have the same competence level that your long-term development staV did.” 26. Protecting Intellectual Property is another concern that Kolawa believes is paramount to any business’ longevity. He pointed out that even after signing a mountain of NDA’s with an oVshore company, they could inadvertently pass along a fundamental tip to a competitor, who has also contracted with them— an incalculable hidden cost. 27. “It doesn’t take a rocket scientist to realize that oVshoring exposes companies to greater risk of IP loss, even if that loss is accidental or unintentional. Are the IP copyright laws in the oVshore country as strict as they are in the United States? If not, is it worth exposing your business engine to competitors just to get that reduced project overhead?” said Kolawa. “Remember: once your prize application is in your contractor’s brain, there is no way to get it back out—or to know where it will go.” 28. 78% of executives who have outsourced an IT function have had to terminate that agreement early98, according to a November 2002 study from DiamondCluster International, a Chicago management consultancy. The top reasons for CIO dissatisfaction: poor service, a change in strategic direction and costs. 29. In an article in Chief Information OYce magazine and available here; http://www.cio.com/archive/ 030103/home.html the following was said; 30. CIOs are finding that if they want something done right—or at a lower cost or in a more strategic fashion—they’ve got to do it themselves. “Reinsourcing is becoming more common,” says Rudolf Hirschheim, the Tenneco/Chase International professor of information systems at the University of Houston, who is conducting a study of the trend. “Many companies are finding that outsourcing simply doesn’t provide the cost savings they had hoped for. Or they find themselves burdened by the contract, which doesn’t allow them the flexibility they need.”99 31. In another article (see http://www.cio.com/archive/030103/home—claudio.html) Foremost Insurance had originally outsourced the work for financial reasons but, according to Claudio, savings never materialised. In fact, costs were escalating. “They didn’t have a strong contract that allowed the customer to reap the benefits of total cost of ownership going down over time,” explains Claudio. 32. Although Farmers would have to pay $4 million in cancellation fees and early termination penalties, Claudio’s financial analysis showed that the company could recoup those initial costs within a year and then begin to save money. 33. The entire reinsourcing process took six months and was completed in September 2000. Claudio says the move paid oV. “Within the first year, we began saving about $6 million a year.” 34. Again in another article (http://www.cio.com/archive/030103/home—gross.html) He found that IT’s service levels were less than satisfying. For instance, it took up to a month to deploy a new computer for an employee. Another red flag: Calls to the help desk weren’t getting answered in acceptable time. As a result, IT was getting a bad name

97 http://www.contractoruk.com 98 November 2002 Study by DiamondCluster International. 99 CIO Magazine: http://www.cio.com/archive/031003/home.html 3013721029 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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35. CEO made operational excellence and customer service top corporate goals. Outsourcing was negatively aVecting those two new priorities. 36. Gross says he would never again sign a long-term outsourcing contract. “It’s too diYcult to maintain accountability and maintain passion,” he says. 37. The problems of outsourcing however are not just within the US Software-SI chief executive Phil Brooks, 42, is an international expert on legacy modernisation and was an adviser to the UK Government on Y2K modernisation he was quoted in Contractoruk (see http://www.contractoruk.com/cgi-bin/ item.cgi?id%9437&d%193&h%220&f%223 ) “The negative side of outsourcing is beginning to surface and it is all to do with cultural communications,” he says. 38. “It’s the one thing the west has really still got going for it in terms of IT workers and it means some roles will or at least, should, never be outsourced to an oVshore provider.” 39. The communications “interface” between western client and oVshore resources provider is the biggest single factor in this success or failure, Brooks says. 40. “The size of the interface is the crux at the moment. There’s going to be perhaps billions of dollars going to be lost over this one simple concept—it’s going on behind the scenes at the moment. It’s simmering below the surface. Some real humdingers of problems, big ones, and it’s all down to this one concept of the interface,” he says. 41. “The intricacies, the accents, the empathy and comprehension mean we always have to be on home ground with some roles,” he says. “That makes us feel completely safe.” 42. “We provide oVshore services of specialist skills that we think add value from a skills as well as a cost point of view to western companies, we manage that resource from a very small interface, we front it up with a layer of US and UK consultants and a mix of our own architects.” 43. Brooks says a good example of an interface that has been set too wide is the model used by Indian software giant, Wipro Technologies. 44. Despite the eVorts of some Indian companies to bridge the cultural divide as they act on behalf of hands-free western clients, scare stories remain about others. 45. “One instance was with a global investment bank that had outsourced its databases. When one that formed the backbone to its global trading system went down the manager in the west put the call in to find out what was going on”. 46. “The database analyst (DBA) responsible for the system had gone home and stuck the potential problem on his ‘to do’ list for the next morning, in the meantime the bank was losing millions of pounds and the Indians had no comprehension of the criticality of the situation. We tend to take the level of importance absolutely for granted here,” he says. 47. Another problem with oVshoring is that changes in IT are constrained by the contract terms negotiated when the original oVshoring contract was signed. These constraints may be completely diVerent to the prevailing market conditions, aVecting a company’s ability to react to market changes.

Conclusion 1. Freelancing provides a cost eVective way of bringing skills into a company. 2. The freelancing market having grown at rates outstripping predictions is now being slowed by the current trend for oVshoring and a contradictory regulatory environment. 3. Taxation changes are making it increasingly harder for freelancers to train in new skills in modern industries with short skills lifetimes. 4. There is an increasingly apparent need for a Right to be Freelance. June 2004

APPENDIX 15

Memorandum by The Recruitment and Employment Confederation 1. The following evidence provides the perspective of the UK recruitment industry on the Trade and Industry Committee’s inquiry into UK employment regulation, in particular, with regard to the contribution labour market flexibility makes to the UK economy and to the question of whether the current degree of flexibility is appropriate or desirable. 3013721030 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Background 2. The Recruitment and Employment Confederation (REC) is the trade association for the recruitment and staYng industry in the UK. We have 5,000 individual members and 6,000 corporate members, representing over 50% of the recruitment and staYng industry in the UK. 3. Our members provide both temporary and permanent recruitment services to public and private sector employers in all sectors of the economy. Our 6,000 corporate members range from small independent businesses to multi-national organisations. 4. Employment agencies and recruitment businesses are employers in their own right. Within this context the REC fully endorses the evidence given within the context of the current enquiry by business organisations such as the CBI and the British Chambers of Commerce. 5. The following evidence focuses primarily on the eVective provision of temporary work in the UK, which is one of the key corner stones of a successful labour market. As well as providing a vital service for businesses, temporary work is increasingly recognised as a way of enhancing labour market inclusion and employment opportunities for individual workers. The amount of regulation already governing this sector is often underestimated and any future legislation must be developed and implemented in a way that does not aVect the viability of temporary work in the UK. 6. As the representative body for the UK industry, the REC is able to provide detailed information on this area which is why this paper focuses primarily on this area.

The Contribution Labour Market Flexibility Makes to the UK Economy 7. Labour market flexibility has enabled the recruitment industry in general, and the temporary work market in particular, to develop at an unprecedented rate. This has produced substantial benefits for individual job-seekers as well as for employers. It has also enhanced the direct contribution that the industry makes to the UK economy. The latest REC industry survey100 shows that industry turnover has now reached £24.5 billion, an increase of 6.6% on the previous year. 8. Labour market flexibility favours the provision of eVective recruitment services to business and job- seekers and has led to the development of an increasingly vibrant and successful industry. The contribution to the UK economy is substantial.

Temporary Work Enhances Labour Market Inclusion and Provides Opportunities for Individuals 9. The following overview of recent research and data provides real evidence that temporary work is increasingly seen as a viable alternative to permanent employment and is a key means of enhancing labour market inclusion. The importance of temporary work from the perspective of individual job-seekers further highlights the contribution that labour market flexibility makes to the UK economy. 10. For individual job-seekers, temporary work provides a way into the labour market and a crucial stepping stone into full employment. There are a number of reasons for the increasing popularity of temporary work from the perspective of individual workers. Flexibility is one of the key factors as the temporary worker can chose when to work and can accommodate other activities such as caring responsibilities, travelling or studying. Temporary work is increasingly seen as a means of developing skills and overall employability as experience can be gained and new skills developed by working in diVerent roles for a variety of organisations. 11. As well as developing overall employability, temporary work provides a way back into the labour market for individuals who have been excluded for a substantial period. The reality is that employers are more likely to “take a chance” when taking on temporary rather than permanent staV. 12. As a result, the role of flexible and temporary work in enhancing diversity in the work place is increasingly recognised. For example, a number of agencies are focusing on encouraging older workers back into the labour market—one of the specific objectives identified under EU targets for the Lisbon Agenda. Temporary work—with the flexibility it aVords the individual and the employer—is a means of achieving this goal. For all individuals who have been out of the labour market for some time, the first step back is the hardest to achieve. Temporary work provides a means of achieving this first step, especially where the employers are able to oVer long-term assignments which provide a substantial work-based experience. 13. Recent data conforms the benefits of temporary work from the job-seeker’s perspective. For example: — 70% of temporary workers responding to an REC survey believed that temping improves employability101. — Another REC survey showed that nearly 50% of temporary workers actually moved to a permanent job within the organisation which they had been assigned to as a temp102.

100 REC/PWC Recruitment Industry Survey 2003–04. 101 REC Survey, July 2002. 102 REC Survey, May 2002. 3013721030 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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14. But, temporary work does not simply provide short-term and intermediary solutions. The trend is towards longer temporary assignments which provide greater value for both the company and the temporary worker. In the UK, for example, a majority of temporary work assignments last over six weeks103 and an increasing number of individuals actually prefer the temporary work option because of the flexibility it aVords. 15. Further evidence of changing attitudes towards temporary work was generated through the REC survey of temporary workers in July 2004. Flexible working is increasingly seen as a choice rather than a necessity. Of all the temporary workers surveyed: — only 25% had not worked as a temp before; — only 18% said that they would not work at temporary work in the future; and — only 46% of the temporary workers interviewed said that they would actually prefer to be working in a permanent position. 16. The idea that temporary work is necessarily second rate, and that temporary workers are somehow disadvantaged and exploited is being dispelled once and for all. The REC’s recent survey confirms the evidence from previous research. For example, a CIPD study of employee attitude surveys showed that employees on fixed term or temporary contracts were actually more highly motivated, and more satisfied with their jobs, than employees on permanent contracts. A survey by Blue Arrow Research of over 600 agency workers showed that nine out of 10 individuals enjoyed temporary working104.

Temporary Work is Vital for BUsiness and for Competitiveness 17. Recruitment service providers play a key role in helping companies to address resourcing challenges—whether it be temping work or permanent postings and thereby enhance business performance. This is especially important in very tight labour markets such as the UK where the demand for staV is continuing to rise105. 18. Within this context, innovative recruitment solutions and the expertise provided by recruitment service providers are becoming increasingly important. In particular, the eVective provision of high calibre temporary workers is essential in order for organisations to react quickly to changing resourcing needs. 19. The main reason given for the use of temporary workers in UK businesses was the need to meet an increase in demand106. This highlights the importance of temporary work for business performance and for global competitiveness at a time when it is crucial to react quickly to market opportunities. The other main reasons given for the use of temporary workers was to cover for vacant positions and for staV absence. Another important reason for the use of temporary staV is budgetary restraints resulting in headcount freezes. This has aVected both the public and private sector. 20. Companies in the UK and throughout the EU are competing in an increasingly competitive global economy. Fast and flexible resourcing solutions are an absolute necessity.

The Recruitment Industry makes a Vital Contribution to the UK Economy 21. Labour market flexibility has enabled the recruitment industry to develop into an extremely vibrant and successful industry. The overall industry turnover of £24.5 billion107 is principally made up of turnover generated through temporary work placements. The latest survey shows that industry grew by 6.6% over the last year. This trend is set to continue and 85% of respondents to another recent REC survey108 said that the demand for temporary work in the UK was constant or increasing. 22. For all the above reasons flexibility—especially as it relates to the provision of temporary work—is desirable and necessary. The REC does not believe that there is any need for more regulation but we do advocate a greater enforcement of current regulations.

Is the Current Degree of Flexibility Appropriate or Desireable? 23. The amount of flexibility surround the provision of recruitment services is often overstated and the amount of regulation already governing the provision of temporary work in particular is often generally underestimated. Any future legislation—in particular, the proposed EU Agency Workers Directive—must be developed and implemented in a way that does not aVect the viability of temporary work in the UK.

103 CBI Survey, June 2002 (65% of companies reported that assignments typically last longer than 6 weeks). 104 Blue Arrow Research Survey, October 2002. 105 The monthly REC Report on Jobs confirms that demand for staV in the UK has now risen for 12 successive months. 106 CBI Survey, June 2002. 107 REC/PWC Recruitment Industry Survey 2003–04. 108 REC Member Survey (“Branjuicer”), December 2004. 3013721030 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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24. The benefits of temporary work are also linked to the fact that—despite what is commonly perceived—temporary workers do have rights and are already covered by a number of regulations under national law.

The Provision of Temporary Work in the UK is already Highly Regulated 25. The new Employment Agency Act (EAA) Regulations have been in operation for less than a year. The new Regulations that came into force in April 2004 are an updated version of regulations covering the industry which have been in operation since 1973. The REC worked closely with the DTI to inform members and has promoted the need for a common-sense approach to interpreting specific new regulations. There are, however, a number of areas which have caused real problems. The feedback from REC members on the practical implications of the new Regulations was recently collated and sent to the DTI Minister, Gerry SutcliVe. 26. A good example of a specific problem area is Regulation 21 which requires written confirmation on all matters relating to the hirer and the work-seeker is sent to each party within three business days of the start of a new assignment. For those members dealing in high volume, high turnover assignments such as nursing, social care, industrial, technical and hospitality, this Regulation has resulted in an unwieldy and unsustainable paper chase. As well as impacting on the work of agencies, the feedback from members confirms that that this deluge of extra information and paperwork is also seen by most employers and workers as an inconvenience rather than a benefit. This is a good example of additional bureaucracy being imposed without even the mitigating factor of real benefits being created for the intended stakeholders. 27. Based on the specific feedback from members, the overall cost of implementing the new Regulations is between £3k and £20k per branch. There is obviously a substantial variation, depending on the size of the agency and the sector they operate in, but the overall cost to the industry is estimated at over £30 million. 28. REC members are fully committed to high standards within the industry and to compliance with the current Regulations. However, the extra costs and administration that has been created must be recognised. The level of labour market flexibility—in so far is it applies to agencies supplying temporary workers—is often overstated.

The Recruitment Industry also Plays a Key Role in Areas such as Immigration 29. When looking at the current levels of flexibility, it is important to look at other areas that have created substantial additional bureaucracy for the industry. One such area is immigration policy and measures for addressing illegal working. 30. Obligations on employers and agencies under Section 8 of the Asylum & Immigration Act were reviewed in 2004. The Section 8 changes have created substantial additional bureaucracy and uncertainty for agencies. 31. Overall, the industry has been extremely pro-active in seeking to comply with the Section 8 changes. A good illustration of this has been the unprecedented number of calls to the REC’s legal help-line on this issue. 32. The recruitment industry is playing an increasingly important front-line role in the fight against illegal working. This contribution is often overlooked. In addition, the practical diYculties associated with carrying out the right checks and the need for a real support mechanism are clearly under-estimated. The fact that immigration is such a topical political issue will throw more light on the crucial role that law- abiding agencies play in this area and the need for more support.

Temporary Workers already Benefit from a Range of Rights and Protective Measures 33. One of the reasons given for more legislation and for measures to limit what flexibility does exist is to need to ensure that temporary workers receive adequate rights and protection. The REC fully endorses the need to ensure that temporary workers are protected. However, regulations are already in place and rights already exist for all temporary workers in the UK. Rather than new regulation, the key is to ensure that these existing regulations and rights are highlighted and enforced. 34. In the UK, agency workers are covered by working time, the national minimum wage and health and safety regulations as well as provisions for statutory maternity pay. The new Employment Agency Act Regulations provides additional protection and research shows that most temps earn as much as or more than their permanent equivalents. 35. Against accusations that the UK’s flexible employment model is exploitative, temporary workers in the UK enter into the temporary worker arrangement in full knowledge of the status, rights, benefits and limits that apply to that role. There are regulatory requirements in place to ensure that temporary workers engaged and supplied by employment businesses are given written terms and conditions prior to being supplied to a hirer, which in part set out the type of contract that is in place and the temporary worker’s employment status under it. 3013721031 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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36. Temporary workers in the UK benefit from all statutory worker-based rights. The only protections they do not benefit from are those that strictly attach to individuals employed under contracts of employment, such as the right to statutory notice, the right to claim unfair dismissal and redundancy and the right to return to work after childbirth. 37. The UK temporary worker supplied through an employment business enjoys all worker-based benefits and entitlements plus a few more that arise under the Employment Agencies Act Regulations 2003. These are as follows: — the right to be paid for all work done without any unlawful deductions; — the right to benefit from employers’ national insurance contributions; — the right to be paid at least at the national minimum wage; — the right to written terms of engagement containing details of, inter alia, pay, payment intervals, notice, type of work, and paid holiday entitlements; — the right to at least the statutory minimum of four weeks’ paid annual leave (pro rated to the amount of work done in any leave year) including public holidays unless otherwise agreed with the employer/employment business; — the right not to have to work more than 48 hours per week; — the right to rest breaks; — the right to properly regulated night work with the requisite rest breaks and health checks; — the right, subject to qualification, to statutory maternity pay; — the right subject to qualification, to statutory sick pay; — the right not to be unlawfully discriminated against on the grounds of sex, sexual orientation, race, religion, belief, or disability; and — the right to protection under the health and safety legislation. 38. In addition, a temporary worker seeking work through a UK employment business benefits from the following regulatory protections: — a worker may not be charged for receiving work finding services; — any charges that an employment agency/business makes for any of its ancilliary services must be clearly identified and explained; — a worker must be given full details of the hirer and the position to which s/he is being supplied; — a worker may not be restricted from working for the hirer directly or for any other person by the employment business supplying his/her services; — an employment business must not make payment for work done conditional upon receiving a signed time sheet from the hirer; — an employment business must not make payment to the worker conditional on receiving payment from the hirer; — a worker must receive written terms of engagement prior to being supplied or introduced to a hirer; and — a worker must not be subjected to any detriment on the grounds that they go to work for a person other than the employment business or employment agency; 39. It is also important to remember that under UK law, a striking employee of a hiring enterprise may not be substituted for a temporary worker supplied by an employment business.

The Recruitment Industry is Committed to High Standards

40. As well as seeking to comply with existing regulations, all REC members are committed to raising standards and have to adhere to a specific Code of Conduct. Compliance with the Code of Conduct is monitored by the REC Standards Department. All breaches are referred to the Professional Standards Committee which is made up of industry peers as well as representatives from the CBI and the TUC. Severe breaches result in agencies being expelled from REC membership. 41. The genuine commitment to high standards is also highlighted by the huge response to the “REC Audited scheme” which uses external auditors to verify current procedures and compliance with regulations. The aim is to encourage employers to use REC members and REC Audited agencies as a way of “freezing- out” unlawful agencies who deliberately flout all regulations. 3013721031 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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The Current Level of Flexibility is Desirable and Necessary 42. As highlighted above, the level of flexibility covering temporary work is often overstated. What level of flexibility there is both desirable and necessary. Day to day demands of business and the resulting changes in demand for labour could not be addressed with a less flexible employment model. 43. Unemployment figures in the UK are the lowest in Europe and UK business is faring better than its European counterparts. In part this is attributable to the flexible working model at play in the UK. 44. The use of temporary workers by UK companies to address surges in demand as well as temporary dips enables those companies to respond to market forces quickly and cost eVectively. This would not be possible in an environment where any such demands could not be responded to immediately and any response entailed to costly and time consuming exercise of hiring new staV or letting existing members of staV go. The flexibility of temporary work, therefore, to both workers and UK business is vital to the UK economy. 45. Clearly, there needs to be a balance between ensuring that temporary workers have rights and protection and ensuring that business is able to operate eVectively. The cumulative impact of regulations and red tape is a real threat to employment creation and to the continued provision of eVective recruitment services in the UK. Regulations and rights are already in place, any additional burdens would not only have a negative impact on business but would also limit employment opportunities for individuals.

What Must the UK Government Do? 46. The REC believes that greater enforcement of current regulations is essential. Looking ahead, any future legislation must enhance rather than limit the viability temporary work.

Greater Enforcement of Current Regulations is Essential 47. REC members are fully committed to high standards and in many respects the new regulations simply mirror existing obligations under REC Codes of Conduct. Where there have been new requirements to implement, there has been a genuine commitment to doing so in a manner which is fully compliant. Evidence has been the massive response to the REC Audited scheme which helps agencies to monitor compliance with the new regulations. 48. The Government must avoid new regulations and more bureaucracy and look at some of the areas which will really achieve high standards and protection for workers. 49. The most important area for the Government to focus on is the eVective enforcement of existing regulations. It is often said that a bad practitioners will just as happily flout three pieces of regulation as they will ten pieces of regulation. Agencies who are complying fully with the new regulations and incurring the extra costs are increasingly aggrieved by rogue agencies who are not compliant and are, therefore, able to undercut them in the market place. 50. EVective enforcement is more important than ever, whether it be for the existing EAA Regulations or other forthcoming legislation such as the Gangmaster Licensing Act. The present system for the enforcement of the EAA Regulations is wholly inadequate with only eleven inspectors in an industry which counts well in excess of 10,000 businesses. It is interesting to note that the DEFRA Inspectorate for the Gangmaster Licensing Regulations—which only focuses on the agricultural sector—comprises of at least forty inspectors. 51. The other key factor is the need to focus on the end user and to ensure that employers use only reputable recruitment agencies and labour providers. In the absence of a licensing scheme for the UK Recruitment Industry as a whole, REC membership is increasingly seen as a key selection criteria and certainly provides one means for reputable agencies to diVerentiate themselves from the outlaws. The early signs are that the REC Audited scheme will take this a stage further. We call upon the Government to endorse this new initiative and to continue working with the REC to promote high standards within the industry. Clearly, one of the best ways of really promoting high standards within the industry is to ensure that the rogue operators are “frozen out” by cutting the demand for their dubious services.

Any Future Legislation must Enhance rather than Limit Viability of Temporary Work 52. REC members are fully committed to high standards within the industry and to compliance with the current Regulations. However, the extra costs and administration that has been created must be recognised. In the first instance, some of the unnecessary bureaucracy can be addressed by reviewing current interpretations of the EAA Regulations. 53. Looking ahead, it will be essential to take theses extra costs and red tape into account when looking at possible new legislation such as the EU Agency Workers Directive. The cumulative impact of regulations and red tape is a real threat to the continued provision of eVective recruitment services in the UK. 3013721031 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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54. Limiting temporary work would not result in more permanent posts being available. Surveys indicate that only 14% of companies would hire permanent workers to replace temporary workers109. In order to avoid limiting the potential benefits of temporary work in the UK and across in the EU, the Agency Workers Directive must include: — A substantial derogation period before equal treatment provisions between temporary and permanent employees can apply. The six week derogation period currently proposed is wholly inadequate and would have a substantial impact on temporary work opportunities for individual job-seekers. — A definition of what is meant by pay for the purposed of the Directive. Without this it is a logistical impossibility to determine pay comparisons and the fact that a substantial number of companies do not have formal pay scales further complicates matters. — A clear list of the basic working conditions covered by the Directive. Basic working conditions should only include working time, health and safety and equal treatment between men and women. 55. The benefits of flexible working and of temporary work in particular, should be one of the messages of the UK’s forthcoming presidency of the EU. 56. Within the EU, it is estimated that over 7 million workers are employed by the agency work industry. The contribution of agency work to European job creation is increasing on a yearly basis and could lead to up to 4.3 million new jobs between now and 2010110 (10% of the growth targets of the Lisbon Strategy). 57. This contribution must be recognised and the Agency Workers Directive must be reviewed in such as way as to enhance rather than impair the provision of temporary work. January 2005

APPENDIX 16

Memorandum by the Small Business Council I am writing on behalf of the Regulatory Interest Group (RIG) of the Small Business Council (SBC). The SBC was established in May 2000 as an independent Non-Departmental Public Body. It has 24 members, almost all of who are small business owner managers and these members are appointed by the Secretary of State for Trade and Industry. The SBC reports to the Secretary of State on the needs of existing and potential small businesses in order to increase their opportunities of success and growth; advises the Chief Executive of the Small Business Service; and advises on the eVects of the activities of Government on small businesses. In response to your press notice announcing the above inquiry, I would like to submit the enclosed report: Evaluation of Government Employment Regulations and Their Impact on Small Businesses. This was produced by the SBC in March this year and I believe would be of particular interest and relevance to the Inquiry. The key messages from the research undertaken to produce this report are: — Employment legislation makes no positive diVerence to small businesses. — Furthermore, it may actually have a negative impact on employment practices. — Small businesses have a low awareness of employment regulations and see complying with them as a very low priority. Enclosed is the short version of the report that was published in hard copy111. The full version was published as an Internet only publication and can be accessed at this address: www.sbs.gov.uk/content/sbc/ rigbigrep.pdf 17 June 2004

APPENDIX 17

Memorandum by the Trades Union Congress

I. Introduction 1. On 7 May the Trade and Industry Committee announced its intention to conduct an inquiry into UK Employment Regulation that would cover the contribution labour market flexibility makes to the UK economy and consider whether the current degree of flexibility is appropriate or desirable, and, if not, what measures the Government should take.

109 McKinsey report “Orchestrating the Evolution of Private Employment Agencies towards a Stronger Society” (2000). 110 McKinsey report “Orchestrating the Evolution of Private Employment Agencies towards a Stronger Society” (2000). 111 Not printed. 3013721033 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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2. This memorandum presents the TUC submission to that inquiry, and argues: — The debate about employment regulation should take into account the positive advantages of employment rights. —DiVerent forms of labour market flexibility interact: any evaluation of measures to promote numerical or wage flexibility must take into account their impact on functional flexibility. — British debates about employment regulation over-state the importance of labour market flexibility, and this is linked to a “low road” business approach, in which success is built on the foundation of low prices and low input costs—including pay, training and capital investment. — In an era of technological change and intense competition UK companies are less likely to succeed using this approach. Instead a “high road” approach is advocated, based on innovation, investment and high-trust relationships. Unions have a great deal to oVer in an economy that is taking the high road. — The best business environment for this approach is the European Social and Economic Model, providing social security through generous benefits, a firm foundation of fair employment laws, and social partner involvement at every stage, from the firm, through the regions, to the national level. — Specific reforms proposed in the submission include increases in the national minimum wage, an end to the opt-out from the Working Time Directive, the introduction of the Temporary Agency Worker Directive and reform of the law on employment status, with the presumption that all workers are covered by employment rights and any exclusions must be justified. 3. The TUC believes that the debate about employment regulation should take into account the positive advantages of employment rights. Employment rights help labour markets to operate more eVectively by creating security, reducing poverty, inequality and social exclusion, and promoting the long-term trust relationships that are essential if the UK is to succeed in internationally competitive markets. 4. DiVerent forms of labour market flexibility interact: any evaluation of measures to promote numerical or wage flexibility must take into account their impact on functional flexibility1 and vice versa. Some forms of flexibility beloved of classical economists—such as external numerical flexibility2—are much less attractive when this feedback is taken into account. 5. Employment regulation is a matter of more than just laws. The institutional framework—benefits, active labour market policies, collective bargaining—is essential. The TUC has been arguing for some time that the UK’s institutions and laws create a “low road” equilibrium, which constrains firms to adopt business strategies that are unsuited for a future of heightened competition. The public policy dimension of that equilibrium is the characteristic British habit of viewing employment rights only as a constraint on employers. Industrial and social relations are seen as a zero-sum game, in which any advance for those at the bottom must mean losses for those at the top. Sheltered markets have allowed firms constrained by these attitudes to muddle through, but this option is disappearing. 6. This submission argues that the creation of a modern “flexicurity” labour market is the counterpart of the “high road” business environment we seek to create. This is not a Utopia—other low-unemployment European economies have achieved this, using generous but conditional labour market benefits; active labour market policies; social partner regulation of, and participation in, the labour market and devolved institutions and resources. 7. We conclude by arguing for a number of concrete reforms including further increases in the national minimum wage; further tax-benefit reforms to “make work pay”; increased education and training opportunities, especially for people from poorer families; an increase in the real value of out-of-work benefits; increased spending on active labour market policies and (especially) childcare; further measures to improve work-life balance (including an end to the UK opt-out from the Working Time Directive); continued strong support for regional development based on the RDAs; encouragement for the building of High Performance Workplaces; and the reform of the law on employment status. The keynote reform would be for the Government to promote collective bargaining as a key element of flexicurity, using it to address issues of low workplace productivity, training and inequality.

II. Employment Protection is a Good Thing 8. It is notable that the title of this inquiry is “employment regulation” but the terms of reference only mention “labour market flexibility”. This reflects a tendency among some economists only to see employment regulation as a problem. 9. But, of course, the laws, institutions and practices that make up employment regulation do more than simply aVect the degree of labour market flexibility in the economy. They were introduced to achieve positive social and economic objectives, which are valuable in themselves, and the extent to which these objectives are achieved should be included in any assessment. As Robert Solow commented in his Keynes lecture: “Every one of these regulations or restrictions was intended to promote a desirable social purpose. Some may do so ineVectively or ineYciently. That is worth knowing; but the fact remains that wholesale elimination of these ‘rigidities’ is neither desirable nor feasible.”3 3013721033 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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10. Since 1997 the Government has re-regulated the labour market. Some politicians and economists bitterly opposed the national minimum wage, because it would reduce wage flexibility; it would, we were told, increase unemployment and inflation. In fact, price rises in 1999 (the year the minimum wage was introduced) were lower than in the previous year. Employment rose by 250,000 in that year, and it has continued to rise alongside the minimum wage, so that there are now a million more jobs than there were five years ago. 18% of firms aVected by the 2001 increase responded by increasing their use of new technology, and the minimum wage has also been responsible for modest increases in training and improvements in retention and motivation in the low-paying sectors.4 11. The national minimum wage has made life better for many low paid workers. 1.2 million received a pay increase, with black and minority ethnic workers and disabled people gaining disproportionately;5 and over a million people have gained from each subsequent increase.6 The national minimum wage has reduced the gender pay gap by about 1.5%. 12. It is just as misleading to consider the rights introduced by the Working Time Directive only in terms of reduced flexibility. These rights enhance the eYciency of firms and the country as a whole, through improved health and safety—excessive hours are linked to the likelihood of having a road or industrial accident or of over-exposure to dangerous chemicals and to such conditions as cardiovascular disease, diabetes, stress and depression.7 There is also evidence that the long hours culture restricts women’s progress in the labour market, harms parenting and undermines family life and is linked to low productivity, high labour turnover and failure to innovate.8 We know that, despite the severe limitations resulting from the opt-out, the Working Time Regulations 1998 led to 6 million people getting an increase in their holiday entitlement, including 2 million who had previously had no holidays at all. This is a large increase in the total of human happiness, and it is shocking that many politicians and commentators pay it no attention at all. 13. We need these rights to have the force of law because there are far too many employers who will do nothing, even when better conditions would be in their interests, helping them to maximise the contribution their workforce can make to the organisation. The Working in Britain Survey found that “managers are pragmatic enough to adapt to change in the way they treat their employees when it is required of them but few seem willing to take any positive initiative to introduce workplace reform to meet worker demands or aspirations.”9 The survey was carried out when the Government was considering the right to work family friendly hours, a debate that took place after several years of exhortation and advice; the survey found “precious few signs that most employers in Britain are planning in the near future to improve benefits for employees with specific family responsibilities beyond the bare legal requirement.”10 14. Getting rid of employment legislation would not make the problems it addresses go away. Remove rights and workers will try to defend themselves through their unions, weaken the unions and they will turn to the courts. Businesses hate the “compensation culture” that has long been a feature of US employment, where unions have been weak and regulation set at a low level for many years. Its rise in this country has precisely mapped the move to deregulation and attacks on unions.

III. Complexities of Flexibility 15. The Committee’s inquiry focuses on labour market flexibility, and this memorandum therefore does not discuss product or capital markets in detail. But it does refer to them in places, because labour market flexibility is undoubtedly influenced by changes in the product and capital markets. As the Treasury has argued: “The overall flexibility of the economy depends on the interaction of flexibility in the labour, product and capital markets . . . the overall flexibility of the economy depends on each market working as eVectively as possible.”11 16. Equally importantly, just as the labour, capital and product markets influence each other, so to do the diVerent institutions of labour market flexibility. One of the key contentions of this submission is that measures designed to promote numerical or wage flexibility will aVect functional flexibility, and vice versa. 17. The emergence of labour market flexibility as a common field of study is a comparatively recent development, and the term has been defined in many diVerent ways in the past three decades. As Robert Reich commented when he was the US Secretary of Labor, it went “directly from obscurity to meaninglessness without any intervening period of coherence.”12 In this memorandum we will use the Treasury’s categories:13 — Geographical flexibility or the ease with which workers can move across the country to another job. — Employment and numerical flexibility—flexible forms of employment that oVer variations in hours and tenure, and the regulation of hiring and firing. — Functional flexibility—the ability of the workers to perform a range of tasks, and thereby allowing them to adapt to diVerent skill requirements or work practices. — Wage flexibility, real and money wages and relative wages. 3013721033 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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IV. Non-wage Flexibility and the UK Economy

Geographical flexibility

18. The Treasury’s 2003 assessment of EMU and labour market flexibility noted that, job mobility is low in the EU generally,14 but “need not necessarily undermine the flexibility of the labour market as a whole. However, this requires that other characteristics can compensate. That said, more geographic mobility would help adjustment where other labour market adjustment mechanisms are slow.”15 The follow-up report published this Spring added that, with the exception of London, “the net flow between most regions is generally very small over the year,” though net flows disguised the ease with which people can move—2% of the population moved from one region to another in 2002.16 The Treasury believes that geographical mobility is, nonetheless, lower than in the USA, requiring special attention from the Government.17 The Government is piloting reforms of Housing Benefit to make it easier for unemployed people to move to find work, and commissioned the Barker report on housing.18

Employment flexibility

19. The Treasury has argued that a wide variety of employment forms means more people are able to enter and leave the labour market, and for hours to vary in response to changes in demand. There is a great deal of hype about new flexible working practices. There are changes, but they are long-term trends, such as the growing proportion of women in the labour force. Sorting out the real changes from pundits’ inventions, we can say: — Temporary work surged in the mid 1990s, but has been shrinking as a share of employment ever since. Today about 1.5 million employees work in temporary jobs, just over 5% of the all employees. The big change in the recent years has been within the temporary labour market, with fixed term jobs falling and the number and proportion of agency temps increasing. In 2002 the LFS showed 290,000 people, or one temporary worker in 6, saying that they were temping for an agency, and the DTI has said that this is probably an under-estimate, estimating the true number as probably nearer 700,000. — Second jobs/portfolio working has been portrayed as the future of work, with descriptions concentrating on IT literate graduates with a “portfolio” of jobs, not just one. Second jobs are actually more common at the other end of the labour market, where low paid workers need to supplement inadequate earnings in their first job. Although second job holding is more common in the UK than the rest of Europe the number of people aVected is falling at the moment. Today, just over 1 million workers have second jobs. — Homeworking is not going to be the typical pattern of the future. There has been no overall rise in the total number of people working at home rather than in an oYce or factory, though occasional working at home—a day or two a week—is much more common nowadays if we include unpaid overtime by managers and professionals such as teachers. — Teleworking is replacing more traditional forms of homeworking—so although the overall number of people working at home is static the share who say they telework is growing rapidly. But what they often mean is that they are doing some of their work on their own computer—often after the children have gone to bed. People for whom teleworking is their modus operandi are still rare—fewer than 1% of all in work, and most people statistically classified as “teleworkers” are self-employed or home-based workers such as salespeople or consultants. — Specialisation and sub-contracting is becoming more widespread, and has helped drive a big expansion in areas such as business services. Between 2000 and 2003 recruitment services, computer services and marketing and consultancy services have recorded a 20% rise in employment. We expect this trend to continue, with strong demand from both the public and private sectors for bought-in services. — Self-employment is increasingly dominated by white-collar professional jobs in areas such as business services. There are about 3.5 million self-employed people in the workforce today, or just over 12%. — Part time work has grown by 2–3 percentage points in every decade since the start of the 1970s, and we expect this to continue. In recent years the rise in part time work has been related to the increasing number of students, who more frequently combine work and study than in the past. There are several major employers who now depend on student labour. 20. The 2003 Treasury study gives the UK generally high marks for labour market flexibility, second only to the USA. Actually, if the task is to Britain’s employment picture more like America’s we will need a less diverse labour market. Part-time work, temporary work and self-employment are more common in Europe than the US, and the picture for the UK is very similar to that for Europe generally: the UK has higher levels of part-time work but less temporary work.19 3013721034 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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21. In fact, British usage of alternative, ‘atypical’ forms of employment probably reflects weaknesses as much as strengths. As in Europe, about one worker in three on a fixed term contract would prefer a permanent job but was unable to get one.20 The UK has very high levels of ‘occasional’ working at home, but this is likely to be the long hours culture in another guise, rather than evidence of genuine flexibility. Similarly, the large number (by EU standards) of low-hours part-time jobs reflects factors which are unrelated to the flexibility story—lack of childcare, a penal tax-benefit system and the rising number of students taking on jobs to finance their educations. 22. The Treasury assumes that the Working Time Directive’s lack of bite in the UK is a good thing, but the two most common reasons for long hours have little to do with increased eYciency: — low basic hourly rates for manual workers, who have to rely on overtime; and — unpaid overtime by white collar workers—which grew rapidly in the 1990s, powered by the intensification of work.

Numerical flexibility

23. Numerical flexibility is usually taken to have two aspects: internal and external. Internal numerical flexibility is actually much more easily regulated by collective bargaining than by legislation. Unions have long experience of negotiating on overtime, shift premia and annual hours contracts. Business people who resent the intervention of outside regulators in these matters might care to consider the advantages of working with a union to agree mutual gains solutions. 24. External numerical flexibility—the extent to which employers are able to hire and fire workers without reference to standards of fairness imposed by the state—has become something of a totem for the free-market right. Regulation in this area, they believe, hampers productivity, because firms are unable to respond to changes signalled by the market. Lower productivity eventually feeds through to lower total employment, which also results from employers’ reluctance to take on extra workers for fear that they will be unable to dismiss them, should the need arise. Unemployment will therefore, it is argued, be higher in economies with tougher employment protection standards. 25. After the 1997 election Patrick Minford predicted that, together with the minimum wage, the new Government’s (very moderate) plans for strengthened employment would cost more than half a million jobs in the first year, and a million by the end of the second. Recalling this prediction highlights the fact that this is not the best time to argue that labour market eYciency depends on less secure employment. 26. Far from being a threat to jobs, re-regulation has been accompanied by a significant increase in employment. Total employment has increased by about 1.5 million since 1997: as the Chancellor boasted in his Budget speech, we have the highest employment levels and lowest unemployment for a generation, with new records being set every month, and most of this growth has come from permanent employee jobs, not temporary work and self-employment. 27. Most anti-regulation arguments from international evidence rely on comparisons between the USA and the EU. This is interesting—between 1979 and 1997 the UK went as far down the de-regulationist route as the US, but is much less frequently quoted. There is a good reason for this:

Table 1

JOB CREATION RATES 1971–200421

Annual average employment change UK Eurozone 1971–80 !0.3% !0.3% 1981–90 !0.5% !0.5% 1991–2000 !0.2% !0.5% 1991–95 "1.0% "0.2% 1996–2000 !1.4% !1.4% 2001–04 (part forecast) !0.7% !0.8%

Jobs growth in the UK has consistently been at around the same level as the rest of Western Europe or slightly worse. Our foray into de-regulation has had no eVect on this pattern. 28. It is a similar story when it comes to unemployment. In the 1960s and 1970s UK unemployment was lower than in the economies than went on to form the current Eurozone, but between 1980 and 1995 the average annual unemployment rate was higher in the UK than in the Eurozone. Only in the second half of the 1990s has the gap widened significantly between UK and average Eurozone unemployment rates, a period when labour market regulation in the UK was increasing. 3013721034 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Table 2 UNEMPLOYMENT PERFORMANCE 1971–200422

Annual averages UK Eurozone 1971–80 3.8% 4.2% 1981–90 9.6% 8.9% 1991–95 9.3% 9.4% 1996–2000 6.5% 9.9% 2001–04 (forecast) 4.9% 8.1%

29. And there is no clear relationship between a country’s productivity record and their level of labour market regulation. In the chart below, EU member states’ levels of regulation and productivity are compared. The unbroken horizontal line divides the seven countries with the highest level of regulation with the seven with the lowest levels. Similarly, the unbroken vertical line divides the higher productivity countries from those with lower productivity. The chart below shows that there is no clear relationship between regulation and productivity: EU member states are scattered equally across all four quarters. The UK is outstanding for low regulation and productivity. Figure 1: Productivity and labour market regulation in European countries

4.0 Portugal

3.5 Greece Italy Spain 3.0 France Germany Sweden 2.5 Belgium Austria Finland Netherlands 2.0

1.5 Denmark

(late 1990s, OECD ranking) Ireland 1.0

Strength of employment legislation UK

0.5

0 50 70 90 110 130 Productivity (GDP per hour worked, 2002) relative to EU average

Sources: Eurostat and OECD 30. All this is hard to explain if flexibility is the only route to labour market success. It probably isn’t: — A British review of OECD research into the links between employment regulation and labour market performance summarised the results as showing that “employment protection legislation has no significant associations with overall unemployment once other factors are taken into account” and that “it appears more important that the range and type of legislation adopted in a particular country is appropriate and works well with the other labour market institutions and culture in that country”.23 — A study for the OECD in 1996 by Jackman, Layard and Nickell concluded: “Lower employment protection. . .increases hiring and thus reduces long-term unemployment. But it also increases firing and thus increases short-term unemployment. The first good eVect is almost oVset by the second bad one. The gains from flexibility are small.” — A similar study by Nickell published in 1997 looked at the underlying causes of diVerences in unemployment rates across Europe and concluded: “Labour market rigidities which do not appear to have serious implications for average levels of unemployment include. . .strict employment protection and general legislation on labour market standards.” — A recent study by Nickell concluded: “There is no evidence that employment protection slows productivity growth. Indeed, the reverse is more likely.”24 3013721035 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Functional flexibility 31. Workers’ ability to take on diVerent tasks quickly and respond to changes has always been valuable, but this is more true than ever in an era characterised by intense international competition and the use of information technology. Intense competition ensures the existence of a premium for firms that can quickly change their products and the way they create them, and information technology speeds up the response, cutting the time lapse between strategic and operational decisions. But the ability to do this depends upon having workers who can rapidly change what they do and the way they do it, and on an organisation of work that allows, encourages and enables them to do this. 32. In the past, UK policy has concentrated on skills shortages (lack of people with the right skills in the labour market generally) and skills gaps (lack of people with the right skills within firms). Skills shortages have meant that the recovery phase of the economic cycle has always seen an increase in inflationary wage pressure, and the Treasury’s 2003 EMU assessment pays close attention to this issue. The paper notes that the Employer Skills Survey and the BCC and CBI surveys show that that shortages have at least stabilised since 1997; but skill gaps are more widespread.25 Where skills shortages can mean higher wage pressure, skills gaps are more likely to show up in poor productivity—and it is certainly true that the UK has made very little progress in closing the skills gap with the Eurozone economies:

Table 3

PRODUCTIVITY IN 1997 AND 200226

EU % 100 GDP per hour worked GDP per person employed 1997 2002 1997 2002 France 110.8 113.7 107.5 108.8 Germany 107.3 106.2 99.7 97.4 Italy 111.9 113.8 112.6 113.1 UK 88.2 88.1 94.0 96.1

This is not a new story. UK Governments have been trying to improve productivity for a long time, but with very poor results:

Table 4

AVERAGE ANNUALGROWTH IN GDP PER HOUR WORKED, CYCLICALLY ADJUSTED27

1980–90 1990–2000 1996–2000 France 3.2% 2.0% 1.8% Germany 2.5% 1.9% 1.6% Italy 2.4% 2.0% 1.6% EU average 2.7% 1.9% 1.6% UK 2.3% 1.4% 1.5%

33. Skills gaps create a severe limitation in functional flexibility that is experienced at the level of the individual firm, but which is the expression of a systems problem: the UK’s low skills equilibrium. Skills gaps are as much a problem of demand as of supply, indeed, the two are roughly in balance. Employers do not recognise the need to increase skills, because the UK’s characteristic business strategy is to compete more on the basis of low prices than of added value, and high level skills and empowered workers are more likely to be a problem than an asset for a firm adopting this strategy. As long as firms can survive on this basis there will be little incentive to change voluntarily. This problem, which is essential to understanding labour market flexibility in the UK is expanded on below. 34. In our view, the fundamental barriers to workforce reform include: — a lack of the resources and/or money needed to implement change; — excessive workloads, leading to insuYcient time for training and the absence of working time flexibility; — reform being focused on restructuring; — targets and priorities making it diYcult for managers to focus on the ‘soft’ issues of work-life balance, skills training Employment Tax Credit; and — the fact that a disproportionately large amount of the training budget—even in the public sector— goes to managers (80% of skills spending in local government, for instance, is devoted to 20% of the workforce). 3013721035 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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35. None of these problems are functions of excessive employment regulation. Indeed, new regulations could help overcome them: — A right to paid time oV for training. — Extension of the employer training pilots. — Exploration of the possibility of a skills levy in certain sectors.

V. Wage Flexibility 36. There are three broad categories of wage flexibility: — Relative wage flexibility: the ability of wages to adjust across diVerent jobs or regions as demand and supply change (for example, wages in occupations or regions in decline will fall relative to wages in expanding occupations and regions). — Real wage flexibility: the ability of wages in real terms (after adjusting for inflation) to respond to changes in unemployment and labour demand. — Nominal wage flexibility: the ability of wages in cash terms to respond, including overtime, and bonus payments). 37. The Treasury’s 2003 EMU assessment concluded that regional wages had become more responsive to unemployment rates between the mid 1970s and the mid 1990s—in other words, wages grew more slowly in high unemployment regions, making them more competitive in labour cost terms and helping reduce regional unemployment rate diVerentials.28 Our conclusion is that there is no convincing evidence that relative wage flexibility has significantly reduced diVerences in regional labour market performance: — Regional labour markets are an artificial concept—with the partial exception of London and the South East, pay in the UK is set at the national and local level. — The real economic diVerences within the UK are not between regions but at the sub-regional level. The UK has relatively small diVerences in economic prosperity measured at the regional level but huge diVerences when measured at the sub-regional level. — The Treasury’s own regional productivity report concluded that: “relative labour market performance has been remarkably stable since the interwar period”.

Wage flexibility across jobs 38. According to the Treasury study, in flexible labour markets wages will fall in jobs for which demand is falling, when compared with the wages of workers in jobs in demand. Earnings inequality is therefore a sign of increased flexibility, which we should welcome, not worry about.29 39. It is no surprise that over the past twenty years the wages of, for example, a hotel porter have grown less strongly than a City analyst; this reflects their respective bargaining strengths. But no one could seriously think that the former could move jobs in response to the higher wages oVered by the latter. The labour markets at the top and bottom occupy such diVerent worlds that changes in the wage gap between the two tell us nothing about relative wage flexibility. 40. The growth of wage inequality is far more likely to be the old story playing out of labour market privilege for those at the top and labour market exploitation at the bottom. The UK has experienced one of the biggest increases in labour market inequality over the past twenty years, behind only the USA and New Zealand. Institutional factors such as the decline of collective bargaining, weaker employment protection laws, and cut backs in the social welfare safety net have all had a major role to play in explaining the rise in wage inequality in the UK. 41. Another argument says that demand for better qualified labour in the UK and other OECD economies has meant that the wages of those with education has gone up relative to those without education. The growth in wage inequality is therefore primarily caused by “the returns to education” having risen. 42. Widening inequality in education opportunities—with chronic under-investment in state education and a failure to develop a vocational system for those unable to access higher education—must have had an important role to play in wage inequality. In addition, the explosive growth in child poverty in the 1980s and totally inadequate nursery school provision reinforced social divides in educational opportunities especially in the early years. In 1979 only 13% of children lived in poverty, but by 1996 this had increased to 33%. 43. A recent study concluded that people born into a poor household in 1970 and therefore entering the labour market from the mid 1980s onwards stood less chance of moving into higher income brackets in later life than someone born into a poor household in 1958 and entering the labour market from the mid 1970s onwards. The study concluded that this fall in social mobility was partly because “a greater share of the rapid educational upgrading of the British population has been focussed on people with richer parents”.30 3013721036 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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44. Higher returns to education can only be part of the explanation. Many graduates are undertaking work for which a degree is not necessary, suggesting that employers are using university education as a filter for other desirable characteristics.

Real wage flexibility 45. In principle, labour markets can respond to a sudden economic shock—a sharp and sustained rise in the oil price for example—by slower growth in real wages (wages after allowing for inflation) rather than higher unemployment. This is the logic behind many national agreements, social contracts and the like between governments, unions and employers across Europe and (historically) in the UK. 46. The Treasury summarises the results of 23 studies over the past 40 years looking at how real wages respond to changes in unemployment in the UK against other OECD economies. But as they all use diVerent methodologies, diVerent comparators, look at diVerent periods and generate diVerent results it is hard to draw any firm conclusions. The Treasury has developed a statistical measure for the UK that shows real wages have become more responsive to unemployment, but admit that “the change is not statistically significant”.31

Nominal (money) wage flexibility 47. Real wages could come under pressure because inflation increases sharply or because of cuts in money wages. In practice workers have resisted cuts in money wages and some employers may be reluctant to impose them. So wage flexibility is more likely to occur through changes in real wages rather than money wages. 48. However, resistance is likely to be weaker when inflation is very low, so money wages can fall without people experiencing real terms loss of income. This may simply reflect the ability of some employers to exploit workers in weak bargaining positions rather than as an example of genuine negotiated wage flexibility. As recent examples with migrant workers show, those in very weak bargaining positions may have little choice but to accept wage cuts. 49. The Treasury argue that the UK has money wage flexibility through the annual bargaining round, allowing pay to respond to changing labour market circumstances. Pay can also be adjusted on an annual, monthly or weekly basis through changes in overtime or bonus payments. 50. The Treasury oVers no international comparisons to suggest whether nominal wage flexibility is greater in the UK than elsewhere. However, the evidence shows that wage flexibility appears to be as great in Europe as in the UK or in the US. — A recent report by the European Commission undermined claims for the significance of wage flexibility, finding that wage responses to inflationary shocks were “surprisingly similar” in the Eurozone and the USA, that “nominal factors probably do not play a major role in changes in unemployment” and that “the finding of broadly similar degrees of nominal inertia makes it diYcult to identify institutional labour market characteristics as the major determinants of nominal rigidities.”32 — A recent study found that both France and the UK had annual contract durations, most other European economies between two to three years, but the economy with the longest contracts was the US with deals of between three to five years.

VI. Is the Current Degree of Flexibility Appropriate or Desirable? 51. To some business representatives the obvious answer to this question is no, the UK is losing its competitive edge as increased regulation creates a ‘red tape burden.’ This view has been repeatedly articulated by Digby Jones, Director General of the CBI: “Our flexibility has been steadily eroded by ever increasing regulation and there is still more to come onto the statute book. We now face a real danger of our advantage being destroyed and there are clear signals that firms will go elsewhere if they are burdened with more legislation”. “There is absolutely no room for complacency on this issue. The threat is not so much that jobs will go to France and Germany but to India, China and Brazil. The government must resist pressures to regulate further, much of which is coming from Europe and from trade unions.”33 52. Mr Jones’ argument assumes that countries have no alternative to social dumping, to cutting taxes and reducing the level of regulation if they want to keep jobs. Indeed, his argument suggests that we must bring our standards down till we can compete with India, China and Brazil; that is, that British prosperity depends on lower wages and less secure jobs. This is nonsense; UK businesses will never be able to compete on labour costs with nations in the developing world, or with the EU accession countries. Nor should they: our continued prosperity depends not on low labour costs and deregulation but on innovation and adding value to products and services. The recipe for this future is improved management, sustained investment in 3013721036 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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people and capital, a focus on best practice and a business environment that sustains long-term eVorts to move up the value chain. The UK’s still modest level of regulation and low wages are not the obstacles to this. 53. Last year the Department of Trade and Industry published UK Competitiveness: Moving to the Next Stage, a study commissioned from Prof Michael Porter. Prof Porter concluded that British businesses are not being held back by a ‘red tape burden,’ high taxes or too many holidays and rights to time oV. In fact: — “The UK has the lowest level of product and labour market regulations in the OECD.”34 — There is a “generally competitive system of business taxation with incentives for R&D investments and investments in economically distressed areas. The overall level of taxation is slightly lower than in many other advanced economies; this relative advantage of the UK has, however, decreased in recent years.” — “The UK currently has one of the highest levels of labour force utilisation in the OECD,” (that is hours worked per employee, employment rate and labour force participation rate) “behind only Japan and the United States.” 54. Any impartial observer will find the facts persuasive: — An OECD survey35 of business regulation in 1998 ranked the UK 21st out of 21 countries. — And 20th on measures of the severity and costs of employment protection laws. — An independent study36 found that corporate tax rates in the UK were lower than in the US, Japan, Germany, France, Italy and Spain. — A US Bureau of Labor Statistics comparison of labour taxes37 found the UK ranked 20th out of 25 industrialised countries, well below the US. — Comparisons by ONS38 showed average profitability in Britain in 1998–99 was 12% compared with 9% in the US and Spain, 8% in Canada, 5% in Japan and 4% in Germany and the Netherlands. 55. But the evidence that convinced a former adviser to Ronald Reagan has not yet persuaded everyone in Government. The DTI’s Regulatory Impact Assessments for employment legislation regularly overstate the costs of such measures whilst making no estimation of the likely benefits. When dealing with the Working Time Directive, for instance, the DTI’s methodology has been to estimate the total hours that are currently worked above the 48-hour limit and then suppose that new employees will have to be recruited to work all of them. Their Assessment does refer to the personnel and health and safety benefits, but these are given no money value and they are not oVset against the costs. 56. The Treasury appears to be an even bigger sceptic. Its 2003 assessment includes a new index of labour market flexibility,39 which claims to measure how responsive to an economic shock a labour market would be. This index awards the best scores to countries with low benefits, less employment protection legislation, low/no minimum wages, low labour taxes and weak unions. 57. This index prompts a question: if the Treasury really believes that the route to flexibility is via wage inequality, weak unions, low labour taxes and ineVectual employment regulation, what should we make of a Government that has introduced the national minimum wage, reduced the qualifying period for employment protection to one year and increased National Insurance Contributions? The Treasury’s approach should lead them to expect a less eYcient labour market, yet their assessment is that flexibility has improved since 1997. 58. It is notable how little relationship there is between this supposed determinant of flexibility and the countries’ actual labour market performance.40 What this suggests is that, far from there being a simple blueprint for labour market success, countries have a choice,41 and it makes sense to aim for an approach that combines high functional flexibility with high productivity and good social and employment outcomes. 59. Interestingly, this point is particularly well made by Jonathan Michie and Maura Sheehan, who are quoted in the Treasury’s 2004 assessment as supporters of flexibility.42 Their survey of hundreds of British firms actually led to a much more nuanced conclusion that is worth quoting at length: “Any simple-minded view of deregulated labour markets creating a flexible labour market and hence an innovative and dynamic economy is thus found to be dangerously simplistic. Creating the right sort of flexibility can indeed pay dividends. Allow the wrong sort of flexibility and firms may be tempted down a cul-de-sac which allows some short-term pay oV by shifting the bargaining power in their favour vis-a`-vis a more insecure workforce. But this is the wrong route to go down for improved productivity and competitiveness based on quality and high value added. In short, the sort of labour flexibility that Government should be encouraging requires investment in people. The real danger that simple minded policies for labour market deregulation pose is undermining the confidence of firms to invest in their own workforce, for fear that increased labour turnover may lead to the returns on such investment being lost. Labour deregulation may thus inadvertently lead to a lower level of the sort of flexibility that is associated with innovation and good corporate performance. A regulated labour market on the other hand can actually underpin the sort of investment by firms in their own workforce that creates the ‘win win’ outcome of positive human resource management practices such as high levels of training and involvement, along with improved corporate outcomes in terms of motivation, productivity and profitability.” 3013721037 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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VII. The Way Ahead 60. The TUC believes that a key strategic economic task facing the UK is how to achieve a systemic change, moving out of the “low road” rut—competing on price not innovation, with low investment in physical and human capital. As Michael Porter said, this means a transition from being: “a location competing on relatively low costs of doing business to a location competing on unique value and innovation. This transition requires investments in diVerent elements of the business environment, upgrading of company strategies, and the creation or strengthening of new types of institutions.”43 61. Crucially, this transition will depend upon creating high performance workplaces. In recent years commentators, academics and personnel professionals have come to recognise the importance of the way in which an enterprise organises the work it does. In the UK, a CIPD study of manufacturing companies44 has been influential: in the firms studied, HRM practices relating to employee skills and job design accounted for: — 19% of the variation between companies in change in profitability, and — 18% of the variation in change in productivity. 62. In other words, how a company manages its staV directly aVects both firms’ profitability objectives and the Government’s productivity agenda. The import-ant reforms have been those designed to get the most out of the organisation’s employees—by enhancing their capacities, removing barriers to utilising these enhanced capacities and increasing employees’ motivation to do apply them. 63. Firms that succeed in doing this will become substantially more functionally flexible. A key high performance reform is to enhance employee participation, bringing decision-making closer to the operational level. More decision-making by front-line workers increases the pace of innovation, freeing managers to take a more strategic view and to plan further ahead. Even where decision-making has not been delegated, an organisation that oVers more information to employees and is more willing to listen to them will still achieve worthwhile results. Firstly, this is an excellent way to tap into the company’s best source of market intelligence—front-line staV are often the first to become aware of problems or opportunities. Secondly, a commitment to employee involvement is the first step on a ladder of business gains: — Involving employees in decision-making and giving them a real influence over decisions leads to higher morale and to staV being more likely to support workplace change. — This in turn means that supervision can be less intensive. — So managers spend less time fire-fighting minor or day-to-day problems. — Freeing them to deal more expertly with serious and strategic issues. 64. Obviously, a high level of trust is the essential basis. Decision-making cannot be delegated to people who think they are being exploited, and people who are scared to tell their managers the truth cannot be relied upon. Trust cannot be assumed or coerced, and workers will only trust employers who recognise their right to disagree. Organisations that trust their employees and hope to be trusted in return will accept this, and welcome a genuinely independent voice for their workers: — The more important a decision is, the greater the risk posed by issues where there are real conflicts of interest between employees and their employers. — Representative participation can reassure workers that their interests have been fairly taken into account—but only if they trust their representatives. — Workers are more likely to give that trust to their representatives if they believe they are independent. — TUC research45 suggests that, when employees are confident about their representatives’ independence, they will then be happy to see them working in partnership with the employer. 65. But the high road’s clear business advantage has a price: it reduces the profitability at the level of the firm of crude exploitations of wage and numerical flexibility. Morale and the quality of relationships make more diVerence to whether an organisation can achieve the high performance model than any set of techniques or policies that can be ticked oV a list. 66. This conundrum may help to explain why the high performance model is (all commentators agree) comparatively rare. The Workplace Employee Relations Survey suggests that the proportion of companies that have adopted it is no higher than one in seven.46 The attitudes and assumptions that lead to workers being treated as mere factors of production may also hinder the adoption of the high performance model. This approach requires investment in training, and respect for the workforce. 67. The “low road” business model, by contrast, does not require managers to have any respect for their staV—indeed, it is a disadvantage. A study of firms in the pharmaceuticals and aerospace industries described managers failing to consult (or even inform) their staV about major work organisation changes, but still complaining that workers and the union would not get involved.47 The author of another case study report remarked on how frequently the managers refused to accept the legitimacy of workers’ responses to changes, and on how “employees were often seen as the problem rather than as the means through which solutions to problems could be found.”48 3013721038 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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68. This is why the TUC has strongly welcomed the Information and Consultation Directive and Regulations. One of the advantages of the Directive may well be that when companies have to inform and consult their workers it will encourage them to adopt reforms that will be in their own long-term interests. This enhancement of employees’ ability to articulate their interests will encourage the development of high performance workplaces and help achieve a greater degree of fairness at work. 69. We want, however, to be clear in this submission that our aim is not to damn the managers of ‘low road’ companies. Like many British business people they are caught in what Finegold and Soskice in an influential 1988 article described as a “low-skills equilibrium, in which the majority of enterprises staVed by poorly trained managers and workers produce low-quality goods and services.”49 Firms caught in this equilibrium would rarely have room to invest in work organisation or upskilling, and indeed such an investment might not be worthwhile for them. Firms producing low-quality goods usually have to compete on the basis of cost, and “Fordist” production remains ideally suited to them: minimally skilled workers, performing standardised tasks can produce cheap goods and services. 70. The TUC has elsewhere50 looked at the factors that produce this equilibrium, including the skills and qualifications of managers, the viability of alternative business strategies, the rules relating to ownership and corporate governance, union weakness, the attitudes of stakeholders and the legal environment. What is worth noting here is the connections between, on the one hand, the low road and the worship of labour market flexibility, and on the other hand, between the high performance model and a decided emphasis on functional flexibility. 71. The labour market model favoured by the TUC builds on high performance workplaces and the European model of a generous welfare state and investment in active labour market policies. The high road to success is built upon secure jobs with secure wages, and the new rights introduced over the past six years must be the start of reform, not the terminus. 72. In today’s terms security doesn’t just mean freedom from unfair discrimination or dismissal, it also means that every worker must be able to combine their job with their family life. This is not just a matter of “balancing work and family responsibilities”—family life is a right, guaranteed by the European Convention on Human Rights, and that right should be as secure from infringement at the workplace as it is from state restrictions. All this suggests an agenda for strengthening our employment rights: — An adequate minimum wage, providing a foundation for greater equality in original incomes. — A serious attack on the long hours culture. — Substantial public investment in childcare, making it free or at least a great deal cheaper for many more parents. — Basic employment rights for all workers, whatever their status. 73. We argued above for the success of the national minimum wage and the Working Time Directive. The minimum wage has already been raised without an adverse impact on unemployment or inflation, and it can be raised again. The long hours culture is not conducive to the causes of health, higher productivity or attracting women into the workforce; the opt-out from the Working Time Directive should be ended as quickly as possible. 74. The TUC has welcomed the European Commission’s proposals for a Temporary Agency Worker Directive that would give agency temps equal treatment with other workers in such areas as pay, working time and holidays. While significant numbers of people in all forms of temporary job move into permanent work, agency temping can still be a very insecure form of employment. As the OECD warned in a recent survey:51 “persons spending an extended period of time in temporary jobs may be compromising their long run career prospects, in addition to being subject to considerable employment insecurity”. Agencies are expanding and doing well in other European labour markets where regulation is far more extensive and agency workers are often automatically covered by collective agreements. There are no convincing reason why UK agencies and UK employers cannot operate just as eVectively with the Directive as European agencies and European employers. 75. Finally, it is becoming a matter of urgency that the Government should reform the law on employment status. DTI research says that the status of 30% of the workforce is unclear; they may qualify for employment rights, or they may not—only an Employment Tribunal can determine the issue. The OECD has commented on the blurring of boundaries between diVerent categories, and it is clear that the use of casualised labour is increasing: — In the distribution, hotels and restaurant sector there have been large increases in agency and casual workers. By 2002, 61% of staV working in hotels and restaurants were in “casual” work. — In the banking, finance and insurance sector the use of casual workers has more than doubled since 1992, while the number of agency workers has increased by 150%. — In transport and communications, the numbers of agency workers in this sector have tripled since 1992. 76. The Government’s intention when introducing the Working Time Regulations was to ensure that all but the genuinely self-employed should benefit. However, union lawyers have reported a series of cases where individuals, mainly freelancers, who are economically dependent on one or a limited number of 3013721038 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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employers, have been treated as self-employed as opposed to “workers” under these regulations. A piecemeal approach, treating diVerent groups of workers diVerently, would only add to existing complexity and exacerbate the already unequal treatment of diVerent groups. The TUC believes that employment rights should be extended to a broad category of workers: the presumption should be that all workers are covered by employment rights and any exclusions from the definition must be justified, and the burden of proof should rest on the employer. All employment rights should be extended in this way, including health and safety protections, trade union rights, the right to a written statement of terms and conditions of employment, the full panoply of family friendly rights and unfair dismissal and redundancy protections. 77. Above all, we need a new approach to labour market flexibility in the UK that recognises the central importance of collective bargaining and the development of labour market institutions that promote social dialogue between employers and trade unions. High collective bargaining coverage and a strong and systematic role for social partners in labour market institutions give other European economies an in-built advantage. When regulation is needed it can be introduced flexibly and quickly, but often it is the collective bargaining and institutional framework that eVectively regulates the majority of the labour market. Moreover, such an approach means that the focus is firmly on how to improve functional flexibility and create high performance workplaces. This is a key reason why in terms of workplace productivity nine out of the world’s top 10 economies are European.

Notes 1. The ability of workers to undertake new tasks and of organisations to organise themselves in new ways. 2. Numerical flexibility is usually taken to mean the organisation of the workforce in a way that makes it possible for an organisation to cope with changes in demand. Internal numerical flexibility typically means the use of shift-working, overtime etc, whilst external numerical flexibility often means recruitment and dismissal. 3. “What is Labour-Market Flexibility? What is it Good For?”, Robert M Solow, Proceedings of the British Academy, Dec 1998, pp 189–211. 4. The National Minimum Wage, Low Pay Commission, 4th report, 2003, pp 61, 231 & 236. 5. Ibid, para 2.16. 6. Ibid, para 2.20. 7. The Use and Abuse of the “Opt-Out” in the UK, TUC, 2003, quoting: The use and necessity of Article 18.1(b)(i) of the Working Time Directive in the United Kingdom, Barnard et al, EC, 2003; Working Long Hours, HSE, 2002; “Married to the Job”, Occupational Health and Safety, July 2001; Working Long Hours: A review of the evidence, Kodz et al, DTI Employment Relations Research Series 16, 2003; Living to Work Survey, CIPD, 2003; Reducing at-work road traYc incidents, Work-Related Road Safety Task Group, HSE / DTLGR, 2001; “Working Long Hours and Health”, J M Harrington, BMJ Supplement, Vol 308, 1994. TUC analysis of the 2002 Labour Force Survey looking at hours of work and rate of industrial injuries, found a consistent gradient, with people working under 16 hours a week having an accident rate per hundred workers of 1.5, while those who worked more than 60 had a rate of 4.9. 8. Ibid, quoting: Barnard et al; Parenting in the 1990s, Ferri and Smith, JRF, 1996; Step-parenting in the 1990s, Ferri and Smith, JRF, 1998; How do they find the time?; Dex et al, JRF, 2003; The Business Context of Long hours Working, Hogarth et al, DTI Employment Relations Series 23, 2003. 9. Taylor, Managing Workplace Change, ESRC, 2002. 10. Op cit. 11. Flexibility in the UK Economy, HMT, March 2004, para 3.1. 12. Quoted in “Unemployment and External and Internal Labor Market Flexibility”, David Kucera, Center for Economic Policy Analysis, CEPA Working Paper 11, 1993, p 4. 13. EMU and Labour Market Flexibility, HMT, 2003, para 2.59. 14. Ibid, para 2.69. 15. Ibid, para 2.84. 16. Flexibility in the UK Economy, HMT, March 2004, para 4.15. 17. Ibid, para 4.16. 18. Ibid, paras 4.17–4.18. 19. Why the French are Right: answering the flexibility myth, TUC, 1999, quoting data from European Commission, European Employment Observatory, US Bureau of Labor Statistics and UK Labour Force Survey. 20. EMU and Labour Market Flexibility, HMT, 2003, para 2.96. 21. European Economy 4, annex table 2 and 5, annex table 27, European Commission, 2002. 22. European Economy 4, annex table 3 and 5, annex table 28, European Commission, 2002. 23. “Some Labour Market Implications of Employment Legislation”, Labour Market Trends, September 2001. 3013721038 Page Type [O] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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24. Job Tenure and Labour Reallocation, CEP, 1998. 25. Ibid, para 2.104. 26. Productivity, Partnership and Institution Building, TUC, 2003. 27. Ibid. 28. Ibid, paras 2.15—16. 29. Ibid, chart 2.2. 30. Changes in Intergenerational Mobility in Britain, J Blunden, A Goodman, P Gregg and S Machin, IPPR, 2002, p 18. 31. Op cit, para 2.31. 32. “Wage flexibility and wage interdependence in EMU: some lessons from the early years”, European Economy, European Commission, June 2003. 33. CBI Press Notice 24/10/02. We should be careful about claims from business organisations, which may over-state or distort employer concerns. In 1999 the Small Firms Research Trust surveyed firms to find out which regulations took up the most time: 72% said VAT, 57% PAYE, 48% self-assessment, 25% said health and safety and just 5% said the working time directive, 3% the minimum wage and 123% all other employment related legislation. (Quarterly Survey of Small Business in Britain, SBRT, Dec 2000.) Research for the DTI by the Small Business Research Centre at Kingston University (Small Firms’ Awareness and Knowledge of Individual Employment Rights, 2002) asked people running small businesses to identify the most important factors aVecting performance. The authors concluded that “the impacts of individual employment rights on small firms are not widespread.” Just one respondent in six cited any government legislation or regulations (ie not only employment regulation), more popular contenders were competition and financial considerations such as cash flow, debt, rents, interest rates. A substantial minority (about a third) said that employment rights had a positive impact—providing guidelines and clarification in setting terms and conditions for their employees and around 10 per cent said they “raised staV morale and engendered a feeling of security”. In other words, more employers saw regulation as good for business than believed that regulation hampered entrepreneurship and business growth. 34. Op cit, p 25. 35. Economics Working Paper 226, OECD, April 2000. 36. “The Case for International Tax Co-ordination Reconsidered,” Peter Sorenson, Economic Policy, CEPR October 2000. Tax rates on retained corporate income in 1999 were 30% in the UK, 35% in Spain, 37% in Italy, 38% in the US, 40% in France, 48% in Japan and 52% in Germany. 37. Social insurance and other labour taxes as a percentage of hourly labour costs for production workers in manufacturing, BoL, September 2000. In 1999 these were 13% in the UK, 21% in the US, 24% average across the EU. 38. Economic Trends, December 2000. 39. EMU and Labour Market Flexibility, paras 4.73–4.78, created by pooling replacement ratios, unemployment benefit duration, spending on active labour market policies, employment protection legislation tax wedge and union density, coverage and co-ordination. Actually, the index measures labour market rigidity: the lower a country’s score the more flexible it is meant to be. The index shows the UK having the best score in Europe—only the USA does better among advanced industrial nations—but it produces some idiosyncratic results: Italy and Spain, apparently, have more flexible labour markets than the Netherlands, Sweden or Denmark (not a consensus view.) 40. Op cit, chart 4.12. If we rank the countries by their unemployment level, giving their flexibility ranking in the second column, we can see how little relationship there is between the two: Countries and their flexibility rankings, ranked by unemployment

Country Flexibility ranking Switzerland 3 Ireland 6 Austria 7 Netherlands 14 Norway 15 Denmark 19 USA 1 UK 2 Japan 4 New Zealand 9 Australia 10 Sweden 13 Canada 5 Germany 8 Italy 11 3013721038 Page Type [E] 14-05-05 00:14:26 Pag Table: COENEW PPSysB Unit: PAG1

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Country Flexibility ranking Spain 12 Portugal 16 Finland 17 France 18 Belgium 20

41. As Richard Freeman has observed: “Once a country has a strong tradition of basic market freedoms it has considerable leeway in the precise way it structures its institutions. Advanced capitalism is a sturdy economic system that allows for a diversity in institutional arrangements.” (Institutional DiVerences and Economic Performance Among OECD Countries, Richard B. Freeman, CEP discussion paper 557, 2002.) 42. Op cit, box 3.2. 43. UK Competitiveness: Moving to the Next Stage, M Porter, DTI, 2003, p 5. 44. Impact of People Management Practices on Business Performance, Patterson et al, IPD, 2002. 45. What Workers Want from Workplace Organisations, Diamond & Freeman, TUC, 2001. 46. Britain at Work, Cully et al, HMSO, 1999, p 295. 47. High Involvement Work Systems: The Only Option for UK High Skill Sectors?, C Lloyd, SKOPE research paper 11, 2001, pp 15–16. 48. People Management in UK Aerospace: Case Studies, M Thompson, Templeton College for SBAC, 1999, p 67. 49. “The Failure of Training in Britain: Analysis and Prescription”, D Finegold & D Soskice, Oxford Review of Economic Policy, vol 4, no 3, p 22. 50. The Low Road, TUC, 2002. 51. Quoted in Agency Work in Britain Today, TUC, 2003.

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