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Mr. Chaytor: Does the hon. Gentleman not accept that Labour Members have made the point that many employees are not members of trade unions and that we should consider their rights and job security as well? It is important to strike a balance between the work force as a whole and the employer, not specifically between the trade union and the employer.
Mr. Hammond: The hon. Gentleman made an interesting and constructive speech, and I acknowledge what he says. It struck me that, without exception I think, every Back-Bench Labour Member who spoke declared a trade union affiliation and I detect a trade union agenda.
The flexibility of British businessits ability to respond subtly and rapidly to changes in the economic environment which it faceshas been eroded by successive waves of regulation that impose direct and indirect costs on business. Small business is disproportionately affected by legislation like this Bill. We should never forget that small businesses comprise 99 per cent. of all businesses in this country. They employ 44 per cent. of the private sector work force and generate 37 per cent. of the output. Incidentally, they create virtually all the new jobs in the economy.
I note that the Under-Secretary of State for Trade and Industry, the hon. Member for Edinburgh, South (Nigel Griffiths), who has responsibility for small business, has just joined us. The health and prosperity of small business is vital to us all, generating the wealth that underpins not only individual prosperity, but quality public services. We damage them at our peril.
The lesson of many of our European neighbours has been that increasing the burdens associated with employment may benefit those who are fortunate enough to be in work, but that it is at the expense of those without jobs, and society as a whole, as firms slow down the rate at which they create jobs in response to any given economic stimulus. Other economiesfor instance, Germanyhave found it difficult to get back on the growth curve, because employers respond to economic stimulus in every way they can other than by hiring new workers, because of the burdens and rigidities that have been created in the work force.
I am happy to acknowledge that we have not gone as far as some other countries in the European Union in creating disincentives to the creation of new jobs. There is no mistake, however, about the direction in which we are travelling, and it is becoming urgent that we debate the balance that is to be struck.
The hon. Gentleman and his colleagues often say that we should not regulate; instead, we should allow the best employer to operate the best standards and then hopefully the worst employers will improve. The small firms sector is essentially composed of domestic competitors. Does the hon. Gentleman accept that it is uncompetitive to allow the worst employers to operate bad practices and that it disadvantages the best employer?
Mr. Hammond: The hon. Gentleman makes an interesting and good point, which I shall deal with in a moment. Below the legitimate small firm are firms in the black economy. Just as the large firm might think that it is competing against smaller firms with a competitive advantage, so the small firm is often competing at the margin against people who can undercut it by ignoring all regulations and paying no taxes.
There is no doubt in my mind, either, that higher rates of statutory pay and longer periods of entitlement will help those employees fortunate enough to benefit, but we must not pretend that all that is cost free, because that would be disingenuous. All regulation in the workplace imposes costs, both direct and indirect, on employers, other employees and society as a whole. That is not to suggest that all regulation in the workplace is wrong, but simply to point out that business can absorb only so much in the way of cost burdens, and choices have to be made. That requires an open debate acknowledging that fact.
Mr. Hammond: We went through that earlier. Clearly, I would prefer the lightest possible regulatory regime, with the state interfering only where there is a very clear market imperfection or failure that will not correct itself. We have to be clear that there are winners and losers in any regulatory intervention in the freedom to bargain, whether individually or collectively, between employers and employees.
There is no better example than part 1 of this Bill of legislation that can have a hugely disproportionate impact on the small business sector. The direct monetary costs to firms of implementing the additional pay and leave regimes will be small, and the benefits to the employee will be broadly the same in all cases. However, the indirect costs will often be significantly higher in small firms, perhaps outweighing the value of the benefit to the employee.
As I told the hon. Member for Manchester, Central (Mr. Lloyd), the smallest businesses have to compete not only with larger rivals but, in many sectors, with foreign competitors and unfair competition from the black economy. The ability to be flexible and quick on their feet is their principal, and often their only, competitive advantage, and to stifle that advantage is to pull the rug from under the most dynamic sector of our economy; that in turn will impact on the rate of job creation.
Of course, the Bill's provisions are incremental; viewed in isolation, their impact is probably manageable. However, they do not exist in isolation, and are part of a torrent that has swamped small business and shows no sign of abating. Undoubtedly, regulation in the workplace has a cost that affects new job creation. There is therefore a debate to be had in society about the extent to which we are prepared to trade a reduction in the economy's job-creating capacity, which is detrimental to people who are not in work, for improvements in benefits for those who are in work. In my judgment, that debate is being stifled by the Government, who deny that those choices exist.
On the other hand, I am glad to be able to give a broad welcome to the other main strand of the Billthe proposals to improve dispute resolution and tribunal proceduresalthough we are disappointed that the Government already appear to have bowed to union pressure and are clearly under considerable pressure from their own Back Benchers to tilt the playing field further in favour of the employee in tribunal proceedings. We want to explore a number of doubts further in Committee and I look forward to having the opportunity to do so. However, those doubts do not detract from the worthwhile attempt to achieve a better balance between the rights of employees to access a tribunal and the right of an employer to manage his business without vexatious or frivolous cases being brought.
I am unable to extend to part 4 my broad welcome for parts 2 and 3. The proposal to impose on employers a requirement to recognise and provide time off to unlimited numbers of union learning representatives without having any say in their selection or appointment smacks once again of a pay-off to the Government's union paymasters. Union learning reps can play a valuable role in the workplace, but that depends on the consensus that underpins their placement. The idea that the benefits experienced in some workplaces as the result of consensus can be extended to all workplaces by compulsion underlines the intellectual poverty of the Government's regulation-oriented approach.