Draft Maternity and Parental Leave (Amendment) Regulations 2001

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Chris Ruane (Vale of Clwyd): The hon. Gentleman mentions burdens on business. One of the biggest burdens is the inability to attract skilled people into the work force. In my county, we need to attract 5,000 extra workers to achieve our objective 1 goals. Does he not think that measures such as this will help to get back into the work force some of the 13,000 people who are economically inactive in my county, especially the unmarried mothers? That will help businesses in my community.

Mr. Hammond: The hon. Gentleman makes a good point. It was also made by the Secretary of State for Trade and Industry at the Confederation of British Industry conference on Monday, and I listened intently to her. When Labour markets are tight, as they are across much of the United Kingdom, employers will seek to improve the terms and conditions offered to their employees, not out of altruism but out of economic self-interest and as a matter of contractual negotiation. That is generally a good thing.

I want to develop the question about where the burden falls, whether on business or on the employees themselves, but first I want to speak about the Government's regulatory impact assessment. Conservative Members are worried that many employment protection and employment rights measures seem to be drafted in such a way as to relate more to large companies and organisations, and I understand why. Many members of the Government--the Minister is one--have hands-on experience of employment relations in large organisations. During the Standing Committee debate on the 1999 regulations, the Minister referred to the Post Office and its voluntarily negotiated parental leave scheme as an example to be held up to the world. We all know what has happened to the Post Office. It is one of the basket cases of British business, and most objective analysts would agree that one reason for that is its burdensome employment practices and low labour productivity. My concern is that such issues are considered in the context of large businesses and that the impact on small businesses is not understood.

The Government's regulatory impact assessment refers to additional parental leave and says that

    ``it is assumed that all employers''--

all employers--

    ``react by reallocating work within their organisations rather than by recruiting temporary replacements. The cost to employers of doing this is taken to be 9-15 per cent. of the labour costs of the absent employee.''

That shows no understanding of the small business sector. How can the work of one employee be reallocated among the remaining employees if there are only three employees and they are all working flat out? It is not possible to reallocate 33 per cent. of the work load to the other two people. I submit that, at least in small businesses, the burden will be significant and the cost will be not the 9 to 15 per cent. of labour costs that the Minister's regulatory impact assessment suggests, but the lost wealth creation and production of that business as a result of key employees being absent. In a small business--I have run one--every employee is a key employee because, if they are not present, work that is necessary to make the business function cannot be carried out properly.

On burdens generally, I would be interested to test my theory on the Minister, having tested it yesterday on the Parliamentary Under-Secretary for Trade and Industry (Nigel Griffiths), who has responsibility for small business. In the short term, it is obviously true that the burden of such regulation will fall on business. Wages will remain the same and businesses will be forced to absorb any costs. In the longer term, it seems to me from my hazy economic theory of 25 years ago that the total cost of employment--wage and non-wage costs--will be borne by employees.

There is a pot called ``the product of labour'', and how it is divided between money wages and the non-wage costs of labour can be decided by agreement and contract at the enterprise or at an independent level, or it can be imposed by Government. In the medium term and in a functioning labour market, the burden of all such measures will be borne not by the business, but by the employees collectively. It is important to understand that such measures, rightly or wrongly--I express no opinion about that--reallocate the product of labour between different individuals in the labour force. Under the regulations, the product of non-parents will be reallocated to parents in the labour force. That may be justifiable and desirable as a matter of social policy, but it is important to understand that that is what we are doing. In the short term, we are imposing a burden on business, and in the longer term the burden will be absorbed by the employees in the form of lower money wages so that total labour costs are in equilibrium.

Mr. Bill Wiggin (Leominster): Can my hon. Friend cast some light on whether it would be legitimate, when employing someone, to ask whether they were planning on starting a family, either by having or adopting children? That would have an implication—[Interruption.]

Mr. Hammond: Hon. Members laugh, but my hon. Friend makes a good point, which the chairman of the Government's better regulations task force, Lord Haskins, picked up on earlier this year in his report on unintended consequences. He said that an unintended consequence of some of the regulations that the Government are bringing in, for understandable purposes, may be that employers, especially smaller ones, will tend to discriminate against certain classes of potential employee. I think that the Minister would accept the well-known fact that, at the margins, young women suffer a measure of discrimination in potential employment situations by employers who fear—or logically observe—that they have a far greater chance of wanting to take maternity leave than their male colleagues or older female colleagues. We should not lose sight of the possible unintended consequences.

Another major change is counting previous employment when calculating employees' entitlement to take parental leave. That will impose an administrative burden on businesses, and will tend to work against a principle that many businesses, especially small ones, hold to be important: that rights should accrue incrementally to people as they remain with that business in order to foster loyalty. There is a precedent with sick pay, but I would be interested to know why, and on the basis of what evidence, the Minister has decided that it is appropriate to extend the regulations.

In the 1999 debate, the Minister said that he expected 75,000 fathers—presumably that was an annual figure, not a global total—to take up their rights under the regulations. How many fathers have actually taken up those rights? He also told that Committee that the measures would foster better relationships in the workplace. Have the Government any evidence to suggest that they have done so?

The Department of Trade and Industry press release says that the measures introduced ``had worked well''. What evidence does the Minister have for that assertion? Can he also tell us what means will be used in the future to measure uptake—if I have understood correctly, that will be done by survey—and what the initial costs to business will be?

My confidence in regulatory impact assessments has been somewhat damaged by the assessment of this measure.

Mr. Shaun Woodward (St. Helens, South): The hon. Gentleman will remember a time, when I was in his political party, when he and I together opposed the idea of a minimum wage on the basis that it would harm the employment market. We thought that socially it was a good idea, but that it would do economic harm. I was wrong: it has not done economic harm, and has been good for the market. Can he say now whether, despite his economic arguments, he believes in principle that these regulations will actually be good for the people affected by them?

Mr. Hammond: What I remember most clearly about the time when the hon. Gentleman was in my party is sitting in this very Room during the passage of the Finance Bill in 1998, listening to him behind me droning endlessly on about the difficulty of maintaining one's stately home. When we discussed the National Minimum Wage Bill, also in 1998, we had to work in a vacuum because we did not know at what level the minimum wage would be set.

Michael Fabricant (Lichfield): Will my hon. Friend give way?

Mr. Hammond: In a moment. My hon. Friend the Member for Lichfield (Michael Fabricant) also served on the Committee that considered that Bill.

The level at which the minimum wage is set is the critical factor. In the more affluent parts of the country, given the economic circumstances that have obtained over the past couple of years, it has caused no significant damage to the economy. However, it is far from clear that that is so in less advantaged parts of the country, where wages are generally lower, and in sectors that depend heavily on low-skilled labour, such as the care homes sector.

Several hon. Members rose—

The Chairman: Order.

Mr. Hammond: I am sure, Mr. Griffiths, that you would not want me to revisit the minimum wage, but I do not want to avoid the specific point that the hon. Member for St. Helens, South (Mr. Woodward) made in the context of the regulations.

Of course, it is legitimate for employees and employers to discuss and decide how to package the total reward of employment in terms of non-wage benefits or cash. However, the Government are not necessarily the best entity to make that decision, and regulations that lay down a blanket rule will not deliver the optimum solution for all employees. It is clearly beneficial, in principle, for parents to be able to take leave from the workplace to deal with family matters. However, it is important that they are not led to believe that it has no cost to them and will be paid for exclusively by their employers, because my limited economic theory tells me that, over time, that is not so.

I want to return to the regulatory impact assessment. In the past, I have set great store by these documents, but this one is rather difficult to deal with. The original assessment, which was issued in 1999, is now wildly inaccurate because the up-take rates and the mix of up-take have proved to be considerably different from what was then predicted. According to the most recent assessment, the Government estimate that the regulations could add costs to business of between £6 million and £39 million. What use is an impact assessment that suggests that costs could be £6 million or seven or eight times that amount? If the Minister were looking for someone to build an extension to his house and the builder said, ``It could be £5,000, mate, but then again it might be £55,000'', he would send him packing fairly quickly. Equally, if he were trying to run a business and presented his sales budget for next year as somewhere between £6 million and £39 million—although that may have been the problem with the Post Office—he would shortly be looking for another job. Can the Minister tell us what level of up-take he expects and what real costs he expects to be imposed on businesses?

It is not unfair to say that the whole affair has been a fiasco from start to finish. It was mismanaged by the DTI, then rather crudely covered up. The press release that was issued after the climb-down agreement with the TUC starts by dealing with comfortable, uncontroversial stuff about children with disabilities, and only comes to the crux of the matter—the climb-down in the face of TUC legal action—way down the document, without acknowledging the role of the TUC or, indeed, anyone else. The Minister is admitting that his Department was wrong in 1999, that parliamentary time and taxpayers' money has been wasted, and that the end result is the imposition on business of a bigger short-term burden than the Minister wanted, than business was led to expect and, from what I can see, than would have been necessary to deal with the legal challenge. It is not out of order, Mr. Griffiths, for me to suggest that an apology from the Minister would be in order.

5.5 pm

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Prepared 7 November 2001