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19 Mar 2012 : Column GC85

19 Mar 2012 : Column GC85

Grand Committee

Monday, 19 March 2012.

3.30 pm

Arrangement of Business


The Deputy Chairman of Committees (Lord Colwyn): My Lords, if there is a Division in the House, the Committee will adjourn for 10 minutes or for a time at my discretion if there are more Members than usual.

Public Bodies (Abolition of the National Endowment for Science, Technology and the Arts) Order 2012

Copy of the SI
Copy of the Merits Committee Report
Copy of the JSCI Report

Considered in Grand Committee

3.31 pm

Moved By Baroness Wilcox

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox): My Lords, let me start by reassuring noble Lords that, while this order will abolish the National Endowment for Science, Technology and the Arts as a non-departmental public body, NESTA's future is secure. It is being reconstituted as an independent charity with the National Lottery endowment transferred to a separate charitable trust. There is no anticipated negative impact on NESTA's work as a result of these changes.

NESTA was established by the National Lottery Act 1998 with an endowment from the National Lottery, currently valued at £321 million. Over the past 14 years, it has promoted innovation through a combination of activities. In recent years, its focus has been on delivering practical programmes, such as the Big Green Challenge, providing early stage capital to innovative companies and carrying out research into innovation.

NESTA's future was considered as part of the Government's public bodies reform programme and our commitment to reduce the number and cost of quangos. NESTA performs a valuable function-it delivers highly regarded programmes and research-and we wanted to see its activities continue, but it did not need to remain a public body. Therefore, the Government put forward a proposal to abolish NESTA using the powers of the Public Bodies Act, which, as noble Lords know, received Royal Assent in December.

BIS launched a consultation in October last year on the proposal to change NESTA's status. Some 85 per cent of responses agreed with the preferred policy

19 Mar 2012 : Column GC86

option as the most suitable choice for NESTA. Furthermore, more than 90 per cent of responses agreed that NESTA would benefit from increased independence from government. BIS carried out a full impact assessment of the transition and it is estimated that there will be a net benefit over 10 years of £1.84 million.

I should like to give noble Lords more details about the changes once NESTA is abolished as a public body. It will be reconstituted as an independent charity with the National Lottery endowment held in a charitable trust. Both the charity and the charitable trust have already been registered with the Charity Commission and the objects of the charity are sufficiently broad to allow NESTA to continue with current activities. If the noble Lord, Lord Warner, were here, I am sure that he would be pleased to note that, as he asked during the passage of the Public Bodies Act whether NESTA's activities would be accepted as a charitable purpose by the Charity Commission.

All property and rights relating to the National Lottery endowment will be transferred to the charitable trust. All NESTA's other property and rights, and its staff, will be transferred to the independent charity. The new NESTA charity is the sole trustee of the charitable trust and will apply returns from the endowment to advance the charitable objects of the trust. The NESTA charity also plans to obtain income from other sources, which it can use for its wider objectives. A final transfer scheme will be laid in the House once the order is made and the transfer will take place at the same time as NESTA is abolished. Subject to parliamentary clearance, the changes will come into effect on 1 April.

In order to maintain assurance for propriety of the way in which the National Lottery endowment is used, the Government are currently appointing a protector of the trust. The protector will have a fiduciary duty to ensure the integrity of the administration of the trust and the propriety of its procedures. He or she will be able to report any matters of serious concern about the way the endowment is being used to the Charity Commission and to Ministers. This model is already in use by the Millennium Awards Trust.

Following its change of status, NESTA will remain a UK-wide organisation and I understand that it is keen to increase its level of activity in Scotland, Wales and Northern Ireland. As required by the Public Bodies Act, we have obtained the consent of the Northern Ireland Assembly, and the Scottish Parliament will be considering our order on Wednesday. We have also consulted the Welsh Government and continue to keep them informed of progress. I commend this draft order to the Committee.

Lord Razzall: My Lords, I welcome the explanation given by the noble Baroness. Of course, I fully support this proposal, as does, it appears, virtually everybody who has been consulted. My one question relates to the retention of the endowment within the public sector. As I understand it, the Government do not want to transfer the endowment out of the public sector, as the endowment is held more in less in government securities and, if those were to be transferred

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out, that would lead to an increase in the public sector net debt. Could the noble Baroness assure me that the retention for national accounts purposes of the endowment in the public sector does not imply any form of control of those assets by the Treasury? Clearly, the whole purpose of doing this is to get this out of the public sector entirely. Will she assure me that this is purely a technicality and that there will be no attempt by the Treasury to control that flow of money?

Baroness Hayter of Kentish Town: My Lords, the central question facing us on this issue is to ensure that, after replacing NESTA with a charity, it will continue with NESTA's fine role in helping to grow our innovation economy and have an appropriate level of public accountability and scrutiny, which are not the same as diktats from the Treasury.

NESTA was one of the very successful measures introduced by the last Government to improve the translation of new research ideas into business and jobs. It used lottery money, which is, after all, the people's money, to make the UK more innovative. As part of that, NESTA forged some interesting partnerships between innovators and policy-makers. As well as the investors, community organisations and educators have been there from the start. Some £50 million of the £320 million of the endowment that the noble Baroness mentioned was invested in start-up businesses. NESTA became the UK's single biggest seed capital investor, which is something that we probably all applaud. That meant investing in life sciences and the healthcare sector, diagnostics, devices and biomaterials. These went into areas such as immune regulation, using some interesting new research and translating it very closely to patient use, a new generation of nerve repair from an innovative material and even being able to find a means to regrow teeth where they have been lost.

That work continues through the running of programmes with health service providers to improve the way that patients can work with doctors in managing long-term healthcare and, in a different sphere, through helping arts and cultural organisations to develop new business models and reach new audiences. The work also continues through developing with local authorities ways of looking after the elderly and young people and funding new ways to increase the giving of time, skills, assets and money through the Innovation in Giving Fund-something that I think we all welcome. We hope to see NESTA's work continue to develop, but it has also played a role in encouraging high-flying early-stage researchers to be aware of the possibility of working across other disciplines and communicating science and its innovations to the public. I hope that the Minister will assure us that that work will continue.

As the Public Bodies Act was going through, I never accepted the necessity of moving NESTA from the public sector. I thought that that was being done simply to add another tick to the list. However, as it is now about to become a charitable company limited by guarantee, I hope the Minister will reassure us that it will not be caught by a lot of Charity Commission rules which were developed for a different purpose; that is, to protect normal beneficiaries of normal

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charities. We hope that it will not therefore have to answer a lot of questions designed for a different reason. Perhaps more importantly, we are about to lose some public accountability over the expenditure of money which has been raised from the public. The Minister mentioned the protector, which is an interesting name. It seems that the protector will ensure that the money is spent only on charitable aims and that NESTA's procedures have integrity-I think the Minister used that word-but the protector will not be able to ask whether better things could have been done or other projects helped. At the moment Parliament can ask those questions about how NESTA is fulfilling its role and about its record, priorities and effectiveness. It seems to me that this accountability will now disappear. Therefore, the population whose money was spent on the lottery and then given to NESTA will have no say over the new charity via their elected MPs, this House or the Government. I hope that the Minister can reassure us on that point.

I am delighted-I have a feeling that the Minister will agree with me on this-that half the new trustees are women, which is an improvement on the fact that 100 per cent were men when the body was in the public sector, so some good things are happening. However, who in the future will appoint those charitable trustees? Will there be any public accountability over the decisions that those trustees will take on the use of the endowment? As I say, I regretted the original decision that was taken in this regard but we have probably ended up with the best possible outcome. However, I hope that the Minister will reassure me as regards public accountability and how the charitable trustees will be appointed in future. I also hope that she will reassure us that she will encourage the Government to use NESTA as a vehicle for promoting innovative ideas. It will be much better placed to do that outside the public sector. I hope the Government will give it every encouragement to do that.

3.45 pm

Lord Young of Norwood Green: My Lords, I will not repeat what was said by my noble friend Lady Hayter, or by the noble Lord, Lord Razzall, so I shall be brief. As my noble friend said, we are discussing a casualty of the quango bonfire. Given the praise that the Minister heaped on NESTA, I wonder: if it ain't broke, why did we bother to fix it? However, that question was covered by my noble friend.

I have a couple of points. The Minister spoke of staff being transferred. Am I right in assuming that they will be transferred under TUPE arrangements? I see a nod: that is good. I, too, am interested in the question of accountability and found the title of "protector" interesting. It has a Cromwellian overtone, so I hope that it will not go to his or her head. My noble friend Lady Hayter made a point about the fiduciary duties of the protector to ensure that the charitable trust performs its duties and to report to the Minister. I, too, would be interested in the general activities-apart from ensuring financial probity-of encouraging innovation and investment in the kind of areas to which my noble friend referred. If a report is made by the protector to the Minister, will we be able

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to question the Minister on it? I would also be interested to know how trustees will be appointed in future. I will not comment on the more technical points made by the noble Lord, Lord Razzall, and await with interest the Minister's response.

Baroness Wilcox: I thank noble Lords for their consideration of the order and will try to answer the questions asked by my noble friend Lord Razzall, by the noble Baroness, Lady Hayter, and by the noble Lord, Lord Young. I can assure my noble friend that there will be no attempt to control how the endowment is spent by the Treasury once the transfer scheme comes into effect. I hope that he will find that answer reassuring.

The noble Baroness, Lady Hayter, asked several questions. I will try to answer most of them. Of course I agree-as I did in my earlier speech-that NESTA has done a wonderful job. The idea is to set it free to be able to do even more. Its objectives were registered with the Charity Commission and the Office of the Scottish Charity Regulator. Perhaps the noble Baroness did not ask about the Scottish Charity Regulator, so I have given her a bit more information than she asked for-but it is jolly nice to know these things.

In answer to the noble Baroness's next question, once NESTA is reconstituted as an independent charity and trust, it will continue to support innovative companies, both as part of a diversified portfolio invested for financial return and through grant funding and programme-related investment in line with the charitable objectives that have been cleared. I hope that the noble Baroness will accept that reassurance.

In answer to the noble Baroness's third question, the new NESTA trust and charity will be subject-as is the case with all charities-to charity law and charity accounting rules. There are currently four trustees of the charity. The appointment of trustees to the charity will be a matter for the charity itself. We understand that the NESTA charity intends to appoint a number of new trustees in April 2012. It has established a nominations committee to consider the skills and experience required for the board, and is currently running an open applications process for new trustees. There will be no government involvement in that.

I am as delighted as the noble Baroness that half the charitable trustees are women. We will see if that continues-or perhaps it will finish up as an all-women board, whereupon the men will start to complain that they are not getting in anywhere. However, we will deal with that when we get to it. She mentioned that the previous Government had done a lot of work with NESTA, and we have been able to take on a concern that is going extremely well. We think that it will be very happy with this new move.

The noble Lord, Lord Young, asked about the protector-like him, I immediately thought "Cromwell" when I heard the word. There are no plans for the protector's report to be presented to the House. The Government will continue to collaborate with NESTA in the future. As I said, there is a previous organisation; the model is already in use by the Millennium Awards Trust. We are watching carefully how that runs.

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NESTA promotes innovation and creativity to help tackle social and economic problems, and provides the independent, well informed commentary on innovation policy that we have been asked should continue. However, after consideration of the conditions set out in the Public Bodies Act, the Government have concluded that NESTA does not need to be in the public sector to carry out its work. Abolishing NESTA as a non-departmental public body and reconstituting it as an independent charity and charitable trust will give NESTA greater freedom to pursue its valuable activities, which noble Lords have praised this afternoon.

I thank noble Lords for their contributions to this interesting debate, and I commend this draft order to the Committee.

Motion agreed.

Companies Act 2006 (Amendment of Part 23) (Investment Companies) Regulations 2012

Copy of the SI
Copy of the JSCI Report

Considered in Grand Committee

3.52 pm

Moved By Baroness Wilcox

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox): My Lords, investment companies can benefit from a special distributions regime in the Companies Act 2006 if they satisfy conditions. These draft regulations amend those conditions to ensure that they remain in step with tax rules, which have recently been amended.

Investment companies are professionally managed, pooled, risk-spreading investment vehicles. They are publicly listed and invest in a diversified portfolio of shares, securities or other assets with the aim of providing a return to their investors.

These draft regulations amend the Companies Act to ensure that company law and tax rules work in harmony. Part 23 of the Companies Act regulates distributions by a company to its shareholders. It aims to protect the company's creditors by ensuring that funds are available to meet the company's debts in the event of it winding up. The most common form of distribution is the payment of a dividend.

The Companies Act allows investment companies to benefit from more relaxed distribution rules compared with other public companies when making distributions out of revenue profits. Investment companies do not have to comply with the net asset test, which permits a public company to make a distribution to its shareholders only if the amount of its net assets is at least equal to its called-up share capital and those reserves not available for distribution. Instead, an investment company must

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meet a condition that requires the company's assets to be at least equal to one and a half times the aggregate of its liabilities to its creditors.

This concession for investment companies takes partial advantage of an option in the second company law directive. It recognises that during periods of falling share prices, investment companies might not be able to pay dividends to their investor-shareholders if required to satisfy the net asset test. This would undermine the purpose of these companies.

These draft regulations allow more types of investment companies to qualify for the relaxed distributions regime. It simplifies some of the conditions to ensure that they are compatible with the recent changes to the tax rules. They remove a restriction that prohibits investment companies from paying dividends out of capital profits. Investment companies, like other plcs, will be able to pay dividends out of capital profits and still benefit from the relaxed distribution rules. This change will allow the tax rules to work as intended.

The amended tax rules may require investment companies to distribute a proportion of their capital profits if they are to benefit from the corporation tax exemption. BIS, HMRC and the Treasury issued a joint consultation document on 27 July 2010 and a summary of responses was published on 9 December 2010. The draft regulations were published on the BIS internet site on 4 November 2011. A full impact assessment has been completed, stating that these regulations have a zero net cost to business. While we have been unable to monetise the benefits to business, the investment industry considers these amendments to be beneficial. Companies choose to opt in to the investment companies regime and will do so only if they consider that the benefits exceed the costs.

In summary, these regulations amend the existing rules for investment companies to broaden the definition of "investment company" and remove unnecessary restrictions. They are necessary if the recent changes made to the tax rules for investment companies are to have their full effect. This is a deregulatory measure that has been warmly welcomed by the investment industry, and I therefore commend it to the Committee.

Lord Razzall: My Lords, I welcome these regulations. It is clearly not sensible that HMRC should propose amendments which, unless the Companies Act is changed, cannot be implemented. I have just one question, which may be difficult to answer. It is suggested that the objective of HMRC is to try to increase the number of investment trusts that become domiciled in the UK in order to take advantage of these changes in company law and tax law. Page 8 of the impact assessment states that,

but that there are 320 quoted investment companies, which suggests that there is the potential for an additional 120 companies to register. Is that right? If the objective is to get companies that are quoted on other exchanges to register here, it could be presumed that a limitless number of companies might take advantage of these

19 Mar 2012 : Column GC92

rules. I assume that the 120 companies referred to here are only UK companies, and it would be difficult to estimate the potential if that is HMRC's objective.

Lord Young of Norwood Green: I enter this debate with some trepidation because it is certainly not my favourite subject. I listened carefully to the Minister throughout her complex analysis of the benefits, but I am not sure that I fully comprehended it, so I apologise if I have to call for a bit of reiteration. I have two questions to put. The first is on risk-spreading investment vehicles. Given the problems that we have had with risk and financial collapses, is the Minister satisfied that the requisite safeguards are in place in these companies? Secondly, can the Minister explain in a little more detail precisely what benefits, following the changes to the corporation tax regime, will arise from realigning company law in this way?

4 pm

Baroness Wilcox: My Lords, I agree that it is a complicated subject-it is complicated to read. Consistency in regulation is essential if we are to provide a framework for companies to operate within and thrive. These regulations remove conflicting regulatory requirements between the Companies Act and corporation tax rules.

In answer to the question asked by the noble Lord, Lord Razzall, 320 investment companies are UK-domiciled. He is correct that we do not know how many companies are registered abroad. I am afraid that is the answer that I can give at the moment, but if the noble Lord wishes to take this up with me-

Lord Razzall: No, that is what I assumed.

Baroness Wilcox: The noble Lord assumed correctly, of course, which is excellent.

In answer to the noble Lord, Lord Young of Norwood Green, tax issues have been debated in the House of Commons and are now in place. I have not brought these details with me but I would be very happy to provide the noble Lord with those. I do not think that those details will make a fundamental difference to what we are asking for today. I hope he will bear with me on that. The noble Lord also asked about the corporation tax regime, which gives exemption to investment companies from corporation tax on their chargeable gains if they satisfy conditions.

In parallel, investment companies and their investor-shareholders will benefit from the removal of an unnecessary restriction. Investment companies will be able to pay dividends out of capital profits without losing their ability to benefit from the special distributions regime in the Companies Act.

Unless there are any further questions-

Lord Young of Norwood Green: I asked about risk. What are the safeguards in relation to assessing risk?

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Baroness Wilcox: We do not consider that safeguards are compromised for risk-spreading vehicles. We regard this as a safe vehicle with no more risks than before. I think that is correct.

These regulations make the necessary amendments and I therefore commend them to the Committee.

Motion agreed.

Industrial Training Levy (Engineering Construction Industry Training Board) Order 2012

Copy of the SI
Copy of the JSCI Report

Considered in Grand Committee

4.04 pm

Moved By Baroness Wilcox

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox): My Lords, I have a fairly lengthy speaking note, which I have tried to minimise, but I hope that noble Lords will bear with me as I go through the main details of the orders.

The orders seek authority for the Construction Industry Training Board and the Engineering Construction Industry Training Board to impose a levy on employers in the industries they cover. The two industrial training boards-ITBs-whose levy orders we are considering are non-departmental public bodies that operate under the provisions of the Industrial Training Act 1982. The boards are employer-led and their role is to ensure that the quantity and quality of training is adequate to meet the needs of their industries. They provide a wide range of services, including setting occupational standards, developing vocational qualifications, delivering apprenticeships and paying direct grants to employers who carry out training to approved standards. The Industrial Training Act 1982 permits an ITB to raise levies on employers so that the costs of training are shared more evenly between companies in the industry. The orders before us provide evidence that, despite the current economic difficulties, these two industries will continue to invest in the skills of their workforces in the coming years.

The orders give effect to proposals submitted to us for levies to be collected by the CITB in 2012, 2013 and 2014, and for the ECITB in 2013. Both involve the imposition of a levy which is estimated to be in excess of 1 per cent of emoluments, essentially wage costs, for some employers. The orders can be made only if the Secretary of State is satisfied that the amount of levy is appropriate to the circumstances, that the proposals are necessary to encourage adequate training in the industry, and that they have the support of more than half the employers who together are likely to pay the majority of the levy. The Secretary of State is satisfied that these conditions have been met.

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The Act also requires ITBs to include proposals for exempting small employers from the levy. Both orders therefore provide that small firms will be exempt if their expenditure on payroll and sub-contract labour is below a certain threshold that the industry considers to be appropriate. Those firms are still able to benefit from grant and other support from ITBs, and many of them do so.

In the Construction Industry Training Board order before the Committee, the CITB proposes that levy rates should remain unchanged from those approved by the House in 2009; that is, 0.5 per cent of payroll in respect of direct employees and 1.5 per cent of net expenditure on sub-contract labour. The rationale for the higher levy rate on sub-contract labour is that most training is carried out by employers with a direct labour force, mainly smaller employers. For the larger employers who use more labour, only sub-contractors are not usually directly involved in training. The higher levy rate on sub-contract labour is intended to share out the costs of training more equally across the whole industry.

As I said earlier, small firms are not required to pay the levy, and therefore employers whose combined payroll and net expenditure on sub-contract labour is less than £80,000 will not have to pay it. Around 50 per cent of relevant employers fall into this category. In addition, with the support of industry, the CITB has tried to mitigate the impact on employers who are just above the small firm threshold by applying a 50 per cent reduction to the levy payable if an employer's expenditure on payroll and sub-contract labour is between £80,000 and £100,000. Over three years, the CITB's proposals are expected to raise between £380 million and £390 million on levy income.

In the Engineering Construction Industry Training Board order, the ECITB also proposes to make no changes to its levy rates. The rate for site employees is 1.5 per cent of total payroll and net expenditure on sub-contract labour. Employers who spend £275,000 or less on site employees will not have to pay the levy. The rate in respect of offsite employees, often referred to as "head office" employees, is 0.18 per cent of total payroll and net expenditure on sub-contract labour. Employers who spend £1 million or less in respect of offsite employees will not have to pay the levy. Of all the establishments which are considered to be leviable by the ECITB, it is expected that around 35 per cent will be exempted from paying the levy. The ECITB covers a much smaller industry than the CITB, so the one-year proposal is expected to raise around £20 million in levy income.

The Committee will note that the CITB levy order covers a three-year period, while the CITB order covers only one year. The Industrial Training Act requires ITBs to submit proposals "from time to time". Those proposals may provide for levies to be imposed for a period of up to three years. In 2009, both orders were made for three years. This time, the ECITB has proposed a one-year levy order because, in view of the current economic conditions, employers consider that they should retain flexibility on the issue of future levy rates. It is anticipated that next year the ECITB levy order will cover a two-year period with the intention

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of realigning the two orders, so that from 2015 both will again cover a three-year period.

The Committee will know from previous debates that the CITB and the ECITB exist because of the support they receive from employers and employer interest groups in their sectors. As I indicated earlier, there is a firm belief that without them there would be a serious deterioration in the quantity and quality of training in these industries, leading to a deficiency in skill levels. The boards' own annual employer surveys continue to demonstrate strong support for the principle of a levy system. These draft orders will enable the two boards to continue to carry out their vital training responsibilities, and I ask the Committee to approve them. I beg to move.

Baroness Turner of Camden: My Lords, I thank the noble Baroness for the very detailed introduction. I have only one or two very minor points to raise on it.

First, when I was a member of the Equal Opportunities Commission we had a very successful campaign, known as the WISE campaign, which was conducted under the leadership of the noble Baroness, Lady Platt, who is herself an engineer. At that time I was a full-time union official and we co-operated with the ECITB-in fact the training board had always had a very good reputation with unions-and with the EOC in order to get women into the study of engineering. At that time it was not felt to be a suitable career for women, and that sort of feeling is still around. I would therefore like to know whether any special emphasis is being put on something like the WISE Campaign in view of the changes to the levy now being imposed so far as the training board is concerned.

As for the CITB, in some of the House's debates on employment conditions and rights I have often been bothered about the fact that the construction industry unfortunately still has a very bad record on health and safety. I would like to know whether the Minister feels that the levy which is to be applied will be sufficient, and whether sufficient emphasis will be placed on the whole issue of health and safety in construction. I think that it is a very important issue at the present time.

4.15 pm

Lord Razzall: My Lords, these orders are relatively straightforward. I have two questions for the Minister.

First, I note with interest that in the first consultation only 52 per cent of all levy-paying employers were in favour and in the other one only 59 per cent of the levy-payers were in favour, although in each case they represented slightly more of the estimated payments. Is the noble Baroness satisfied that that is sufficient approval for these proposals?

Secondly, there are quite detailed proposals for minimising the impact of these levies on small businesses. The various Explanatory Statements simply state what the proposals are regarding the exemption for small businesses, which the noble Baroness explained in her opening remarks. Is she satisfied that those exemptions go far enough?

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Lord Young of Norwood Green: My Lords, I, too, thank the Minister for her explanation of these orders. Generally speaking, we welcome the levy. Indeed, if it applied across all industry we might find another means of ensuring that we had more training and more apprenticeships, given that only 4 per cent to 8 per cent of employers actually employ apprentices. I welcome the fact that despite difficult times a significant majority of both the engineering construction industry and the construction industry still believe that the levy is a valuable and viable way forward.

I certainly concur with the points made by my noble friend Lady Turner in relation to women in engineering. Significant attempts are being made by companies to ensure that more women are involved in engineering, and in getting those women who are involved to go to schools and spread the word that this is an industry that provides useful employment and good-quality careers. The same can be said of construction. We are gradually beginning to see more women. I do not know if my noble friend Lady Turner has had the opportunity to visit the Olympic site and see the apprentices there, but it was certainly good to see more female apprentices involved in the construction stages.

I do not have any additional questions. I did not draw the same conclusion from the consultation outcome as the noble Lord, Lord Razzall, because when I read through it I felt that they made quite strenuous efforts to ensure that they had a widespread consultation. They recognise that a declining number of employers are involved in trade associations so they have gone for a wider survey. I think that the surveys are valid and can be justified. I understand why there has been only a one-year levy ordered, but I welcome the fact that both those levies will be realigned.

Baroness Wilcox: My Lords, I thank noble Lords very much indeed for the short debate that we have had. As soon as I saw the noble Baroness, Lady Turner, stand up, I almost saw the noble Baroness, Lady Platt, standing up with her because when I first came into this House they were doughty campaigners, and still are. The noble Baroness, Lady Turner, may be interested to know that the noble Baroness, Lady Platt, has stayed in contact even though she has to be at home most of the time and has written most encouraging letters throughout her absence, so she is with us in spirit if not in body.

Although the number of women in this field is increasing slowly, the CITB recognises that the number of women employed in construction remains disproportionately low, and it is directly addressing this issue by actively promoting equality and diversity. It was awarded the equality standard in 2011. Gaining the equality standard is a first for a sector skills council. It is also the first time that an organisation working across the three nations has achieved that standard, so things are improving, although there is more to do.

The noble Lord, Lord Young, kindly mentioned the apprentices at the Olympics site. I have been there and met them. It is lovely to see young girls having the opportunity to take on careers which are stretching

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them in every way. Both industries are health and safety-intensive industries, as the noble Baroness, Lady Turner, said. We have been told by both organisations that offering excellent training and following rigorous standards is a priority, so they realise that there is further to go in that regard. It is good to hear them say that themselves.

It is important that the levies do not place burdens on small firms, as I am sure my noble friend Lord Razzall will agree. That is why we have the exemptions. As I said earlier, 50 per cent of small firms involved in construction will not have to pay the levy. My noble friend asked about the surveys. I think that they were justified. Getting people to take part in surveys nowadays is not the easiest thing, but given the breadth of this issue, I think that a figure of some 52 per cent or 59 per cent is good. I am delighted that the noble Lord, Lord Young, was happy to welcome that.

The combined figures from associations and the sample showed 85 per cent employer support for the levy, so that looks good. The proposals before the Committee relate to the construction and engineering construction industries, as we have just said. It continues to be the collective view of employers in these two industries that training should be funded through a statutory levy system to secure a sufficient pool of skilled labour. I commend these orders to the Committee.

Motion agreed.

Industrial Training Levy (Construction Industry Training Board) Order 2012

Copy of the SI
Copy of the JSCI Report

Considered in Grand Committee

4.22 pm

Moved By Baroness Wilcox

Motion agreed.

Postal Services Act 2011 (Disclosure of Information) Order 2012

Copy of the SI
Copy of the JSCI Report

Considered in Grand Committee

4.22 pm

Moved By Baroness Wilcox

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Wilcox): My Lords, the two orders in this group are made under

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the Postal Services Act 2011, which was enacted in June of last year. The overall purpose of the Act is to secure the future provision of the universal postal service. The vast majority of the provisions in the Act came into force on 1 October 2011, including those in Part 3, which covers postal regulation. Part 3 enabled a number of changes to be made to the regulatory framework for postal services, including the transfer of regulatory responsibilities from Postcomm to Ofcom. The two orders before the Committee support the statutory functions of Ofcom as the regulator for postal services. Both extend to Ofcom powers that were previously available to its predecessor, Postcomm, under earlier legislation. I will address each order in turn, starting with the Postal Services Act 2011 (Penalties) (Rules for Calculation of Turnover) Order.

In order to regulate effectively, Ofcom, like any regulator, needs powers to enforce its decisions. The Postal Services Act mirrors the Communications Act in relation to compliance and enforcement notifications, penalties, urgent cases, serious and repeated infringements, suspension or restriction of the entitlement to provide a service, breach of directions and civil enforcement. This is a system that is already in place for the wider communications sector, and with which Ofcom has considerable experience. It is required because Ofcom may at some point need to take action against a postal operator for breach of a regulatory requirement.

There is a range of steps that Ofcom may take if a person is in breach of a regulatory requirement, moving from notification through enforcement notification to imposing penalties. The maximum penalty must not be more than 10 per cent of turnover and must be appropriate and proportionate to the contravention that it is designed to address. The order sets out the rules by which Ofcom must calculate turnover for the purpose of imposing such penalties.

The schedule to the order establishes the general rules for the calculation of turnover for the purpose imposed by Ofcom. Rule 1 sets out that turnover shall be calculated in conformity with accounting practices and principles that are generally accepted in the UK. Rule 2 sets out that the turnover of a person's postal services business shall be calculated after the deduction of sales rebates, value added tax and other taxes directly related to turnover. Rule 3 makes provision for the calculation of turnover where a person's postal services business consists of two or more undertakings. The power to impose penalties was available to Postcomm under the previous legislative framework. The order will simply allow Ofcom to exercise the same power in the same way, where necessary, to enforce its regulatory decisions.

I turn to the Postal Services Act 2011 (Disclosure of Information) Order 2012. This is made under enabling powers in the Postal Services Act 2011. Section 55-"Information"-and Schedule 8 to the Act make provision for information to be provided to Ofcom for the purpose of carrying out its functions in relation to postal services. Section 56 sets out the framework under which information obtained under Part 3 of the Act can be disclosed to other bodies for the purposes of carrying out their respective statutory functions.

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Section 56(7) of the Postal Services Act 2011 makes it a criminal offence to disclose any information obtained by means of Part 3 of the Act, which relates to an individual or a particular business, during that person's lifetime or while the business continues to exist, unless it is permitted by that section. Section 56 permits disclosure for the purpose of facilitating the carrying out by a prescribed body or other person of any functions under a prescribed enactment, and in other prescribed circumstances or for prescribed purposes, where "prescribed" means by an order of the Secretary of State. This is the subject of the second order before us today.

This order will prescribe those bodies or persons to whom information may be disclosed, the enactments under which information may be disclosed, and other circumstances and purposes. It will permit Ofcom to share information obtained under the Postal Services Act 2011 with certain public authorities that may require that information to assist them in carrying out their statutory functions.

The order essentially re-enacts disclosure gateways that previously existed under the Postal Services Act 2000, combined with those in the Communications Act 2003, although where appropriate it does replace and add some references to account for administrative and legislative changes. I therefore commend these orders to the Committee.

4.30 pm

Lord Young of Norwood Green: My Lords, I thank the Minister for her explanation. As she knows, we were not in support of the major principle behind the Postal Services Act, although I have to admit that we did applaud some aspects of it. We breathed a sigh of relief at the transferring of responsibilities from Postcomm to Ofcom. We can only hope that the regulation will be more effective than it was previously. I have no specific questions on this. As the Minister said, it is just a transfer of existing responsibilities from Postcomm to Ofcom.

Lord Razzall: My Lords, I share the support of the noble Lord, Lord Young. This is the first occasion on which a parliamentary body has met since we read in the newspapers and heard on the radio that the Post Office pension fund will be transferred to the Government. Perhaps I may rather cheekily ask the noble Baroness whether she is prepared to expand on that, and to say whether that means that the European Commission has approved the transfer. Or is that a cheeky question too far?

Lord Cope of Berkeley: Yes, it is.

Baroness Wilcox: My Lords, I think that it is a cheeky question too far, but I am taking my time in saying that in case someone wants to wave at me, in which case I will be only too delighted to give him any information that I can. The Government submitted their notification to the European Commission in June 2011. We continue to work closely with the European Commission and expect to receive a decision by 31 March, which will allow the Government to implement their policy of relieving the pension deficit. I thank the noble Lord for that question.

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Perhaps I may close on these orders and say that I am grateful for the debate. The orders are re-enactments of the relevant provisions that were available to Ofcom's predecessor, Postcomm, under earlier legislation. In the case of the disclosure of information order, the order is re-enacting the gateways that had been available under previous postal legislation. I commend the orders to the Committee.

Motion agreed.

Postal Services Act 2011 (Penalties) (Rules for Calculation of Turnover) Order 2012

Copy of the SI
Copy of the JSCI Report

Considered in Grand Committee

4.35 pm

Moved By Baroness Wilcox

Motion agreed.

The Deputy Chairman of Committees: My Lords, I suspect that there is about to be a Division in the House, so I am not sure whether it is worth going into the next business now. The noble Lord, Lord De Mauley, also is not here. I suggest that we take a five-minute adjournment now, and if there is a Division in that time we will elongate that by 10 minutes.

4.35 pm

Sitting suspended.

4.41 pm

The Deputy Chairman of Committees: My Lords, a Division has been called. We will adjourn for a further 10 minutes.

Sitting suspended for a Division in the House.

4.51 pm

The Deputy Chairman of Committees: My Lords, I adjourned the Committee until 4.51 pm. If noble Lords agree, we will wait for another two or three minutes.

Sitting suspended.

Employment Tribunals Act 1996 (Tribunal Composition) Order 2012

Copy of the SI
Copy of the JSCI Report

Considered in Grand Committee

4.53 pm

Moved By Lord De Mauley

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Lord De Mauley: My Lords, first, I apologise for not being here when your Lordships were gathered. Matters seem to have proceeded apace beforehand.

The effect of the Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order 2012 is to extend the qualifying period for unfair dismissal from one to two years for individuals beginning work on or after the commencement date. It also extends in the same way the minimum period an employee must have been with their employer before they are entitled to request a written statement of reasons for dismissal.

Workers in the United Kingdom have been protected by unfair dismissal legislation since 1971. Since its introduction, unfair dismissal has always been subject to a minimum qualifying period. The concept of a qualifying period has been accepted by successive Governments, no matter their political persuasion, although the length of that period has been flexed by Governments according to economic circumstances, and today's amendment is no exception.

We need to generate jobs and growth. Creating employer confidence is vitally important to underpinning the Government's objective to get the British economy back on its feet. Extending the qualifying period for unfair dismissal is one of a range of measures that we are taking to encourage recruitment and to reduce the burden of employment law.

We have listened to businesses, which have told us that the one-year qualifying period is a barrier to hiring. Business and business representative group responses to last year's Resolving Workplace Disputes consultation were firmly in favour of this extension. They were clear-a year is not always long enough to be certain that a new employee is right for their organisation. I know this to be true from my own experience. When I started my business in 1999, the one-year qualifying period was a source of concern. In highly skilled roles where training can take a considerable time, I needed longer to assess new staff, particularly given that the notice period is taken into account within the qualifying period. This can also be true when potential employees are young and inexperienced, or have been out of work for some time. The Government are thinking about ways in which we can stimulate employers to take on these groups of workers. Extending the qualifying period will give employers the confidence to invest in new members of staff. It will give them the opportunity to get the working relationship right.

It is important to note that our package of employment law measures strikes a fair balance between employee rights and employer needs. "Day one rights" are unaffected by this order. We believe that it is right and proper that an employer who behaves in a discriminatory way or who dismisses an employee for exercising his or her statutory rights will continue to be subject to employment tribunal claims at any time. So without undermining important employee protections, the Government are committed to improving employer perceptions of employment law and the level of burden that it places on them.

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The likely improvements in business confidence are inevitably difficult to quantify. This is because a huge range of factors is affecting levels of employment. The effect of a single regulatory change cannot readily be isolated, but that does not mean that these benefits should be ignored. The majority of businesses say that unfair dismissal rules are an important factor in their recruitment decisions. We are therefore confident that this measure will make a positive impact.

This is about the employer who gives a chance to the school leaver who otherwise may not have been recruited. It is about the employer who might otherwise have let a member of staff go if they have not quite met the mark at a year rather than risk an unfair dismissal claim further down the line. A two-year qualifying period for unfair dismissal is the right policy. It strikes the right balance in the context of our fair and flexible labour market. It creates an environment where employers will have more time to assure themselves that working relationships are right and it will give them the confidence to take on new members of staff.

The Employment Tribunals Act 1996 (Tribunal Composition) Order 2012 will enable but not oblige employment judges to sit alone in employment tribunal proceedings relating to unfair dismissal. This order is about improving the effectiveness and efficiency of the employment tribunal system. It is about replacing prescription with flexibility, but it does so while maintaining essential safeguards to fairness-fairness to the parties and fairness to taxpayers. Of course, judges sitting alone is not a new idea in employment tribunals. The general rule is that panels consist of a legally qualified employment judge and two lay members. Those members respectively are intended to have experience from the employee and the employer sides of industry. Since the mid-1990s, categories of cases have been set out in primary legislation where an employment judge can, subject to judicial discretion, sit alone at final hearings.

5 pm

Your Lordships are familiar with the issues. We debated the matter in March 2009 when the last order under Section 4(4) of the Employment Tribunals Act 1996, on tribunal composition, was put before us. I recall that debate well, having participated in it with other noble Lords who are here today, although I note with sadness the empty seat of Lord Wedderburn. I recall that the noble Baroness, Lady Turner, was here, as was the noble Lord, Lord Borrie. That debate followed the Gibbons review, which found that, in some cases,

I accept that this order is not without controversy. We asked Resolving Workplace Disputes consultees about extending the power for judges to sit alone in unfair dismissal hearings. Responses indicated that a large number of consultees were opposed. There is some timely research being led by academics at the universities of Greenwich and Swansea looking at the role and value of lay members in employment tribunals. The emerging findings of this study suggest support for lay members, both generally and in the unfair dismissal jurisdiction specifically. We agree. I would

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like to place on record that we value the role of lay members in the system and have no plan to remove that role entirely, but we have a duty to consider the full range of evidence in front of us.

There is nothing in the academic analysis published thus far that focuses on value for money. Nor was there anything that sought to break down unfair dismissal hearings in any detail and to analyse characteristics that would lend themselves to judge-only determination or to full panel consideration. There was nothing in the consultation responses that we received that persuaded us that objective, impartial and expert employment judges are not best placed to determine these cases most fairly, in at least some instances. Moreover, a range of evidence supported our proposal. Various surveys-for example, from law firms Eversheds and Pinsent Masons-showed a majority of clients in favour of the further flexibility that we now seek. We are clear that there is a value-for-money case to answer here. While predicted savings flowing directly from this order are not, perhaps, massive, they will help, alongside other measures, to make the system more efficient.

In the final analysis, we are establishing a default position that judges will sit alone in these cases. But judicial discretion prevails. This order does not mandate the exclusion of panel members, whether in unfair dismissal hearings or otherwise. Indeed, we anticipate that employment judges will exercise discretion to sit with lay members in a significant proportion of unfair dismissal hearings. This is because of the characteristics of many such cases. From the academic research findings available and more widely, we know that employment judges value the role of lay members in many unfair dismissal cases. Where appropriate, therefore, full panels will sit. But it is clear that judges and the parties themselves are most aware of the specific circumstances of individual cases. Legislation should, wherever possible, avoid being prescriptive in instances such as these.

We have considered all the views expressed. We spoke to experts, including the judiciary, representatives and users, about the complex nature of unfair dismissal proceedings. Our conclusion is that flexibility cannot be easily denied, particularly with the safeguard of judicial discretion in place. That discretion will be exercised against well tested statutory criteria. The system will work efficiently and fairly in practice, as it does now where judges sit alone already. For the reasons that I have outlined, the Government believe that unfair dismissal is a sensible addition to the jurisdictions that can be heard by a judge sitting alone.

In the current climate, any job created is good for the country and anything to lighten the load on businesses must be welcomed. So, too, should any measure that contributes to a more efficient and fair employment tribunal process. I am confident that these orders will help to do precisely that. On that basis, I commend these orders to your Lordships.

Baroness Turner of Camden: My Lords, I will speak on the two orders dealing with employment rights. I say at the outset that I oppose both of them. The first provides for an increase in the time that an employee must be in employment before they can claim unfair dismissal. At present, the employee must be in position

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for one year. The order increases this to two. It is not at all clear why. Surely it is possible for an employer to assess within one year whether an employee is suitable. Increasing the time to two years could involve difficulties, particularly for young people. Many people younger than 24 have not spent as long as two years in one job because of the current employment situation. I see no reason for the increase-and the majority of consultees disagreed with the proposal.

The second order seeks to remove lay representatives from tribunals, so that they will take place with a judge sitting alone. The reason for this proposed change is also unclear. It is opposed by the TUC, the CBI, the Engineering Employers Federation and Citizens Advice. The Government's own paper states that of the consultees-there appears to have been some consultation-only 33 per cent were in favour of the proposal and 66.5 per cent were against. Surely it is understood that job loss, particularly for older people-and many of those involved are over 45-is a disaster not only for the employee but for their family, as they will probably face a long period of declining living standards and perhaps a reliance on benefits. If the dismissal is felt to be unfair, the trauma is even greater.

When industrial tribunals were first established, it was felt that cases could be heard in a relatively informal way, with lay people involved who had a knowledge of workplaces, and with a judge in the chair. It was thought that employees might not need legal representation since the hearings were such that the employee could represent himself or herself. A judge sitting alone would create a much more legal atmosphere-and of course, under the legal aid Bill currently before the House, no legal aid will be provided. I believe that the Government believe that more cases are likely to be lost in the set-up that they propose. I believe that this is part of a long-term project to decrease employment rights that have been built up over the past century.

The intention is that eventually lay people should be removed from the EAT-the appeal court-which will remove from the system lay people who have a knowledge of both sides of industry and commerce. It should be noted that organisations with a knowledge of the system believe that lay people provide a very useful element, bringing to bear workplace knowledge and often knowledge of local labour conditions in a way that a judge sitting alone may not do. Again, the Government intend to make it as difficult as possible for an employee to utilise the rights that they have, for which previous generations strove. Moreover, the paper that was issued indicated that the intention was that people would have to pay for the right to have a hearing. That, too, I oppose.

We have a low-wage economy in this country, and the Government are aware of that. Because employment is often badly paid, the benefits system supports low wages. Taxpayers are supporting employers who pay badly. Therefore, employers do not need the extra help of having employment rights removed because they already have the assistance of low wages. Should employees simply put up and shut up? Are working people simply disposable? Should we go back to the conditions that existed at the start of the last century, when employment

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rights were almost non-existent? The orders are a step in that direction. They are not acceptable and I oppose both of them.

Baroness Donaghy: My Lords, these are two shabby little measures that will lead to the further juridification of employment tribunals and encourage lazy management. I speak as someone who was a member of what used to be called the industrial tribunals. It is amazing how long that brand word has lasted, because even now, years after that name ceased to exist, a lot of people still call them "industrial tribunals". I was a member from 1974 to 1989, a period of 16 years, when the whole employment regime was simpler. I acknowledge that employment law has become a lot more complicated, particularly in the area of equal rights. Nevertheless, I do not believe that that is an excuse for further eroding the role of lay members. I honestly believe that there have been attempts to undermine their role for the past 25 years. Every time a new Government come into office, the filing cabinet is opened, the file is dragged out and the new Minister is asked, "Can we do something about these lay members? They are very expensive and untidy. We need three phone calls instead of one. It would be much neater and tidier if we could get rid of them altogether". Time and time again the TUC and the CBI have acted in unison and tried to indicate that the world of work is different from the world of the judiciary, and have said again and again that this would be a backward measure. I hope that they will say the same thing again this time.

I also speak as a former chair of ACAS, from 2000 to 2007, so I do not have any romantic feelings about employment tribunals. I fully acknowledge that they represent a failure of employment relations and that there is not always a similarity between employment legislation and employment relations. Sometimes they are the same, but as often as not they are different. When a case has to go to a tribunal, it represents a failure of employment relations, which is why the role of ACAS is so important. In fact, it diverts the majority of cases away from the tribunal service by persuading the employer to negotiate or the applicant to withdraw, or by giving advice in private to both parties as to how they can settle their case. If ACAS was not so successful then the tribunal system would have been swamped years ago. So I think we that can talk from certain knowledge about how important cases must be if they do end up before a tribunal. It is not always unreasonable people who come before one. I have never met anyone who willingly took their case to tribunal; they would always look for a different way.

You could almost say that the increase from one year to two years is traditional Conservative policy, just as decreasing it from two years to one year is traditional Labour policy. It could be left at that, saying that it is a purely political measure. But when you look at the world of work and the journals of the Chartered Institute of Personnel and Development- I am a fellow of the CIPD-they say everywhere that you need to talk to your new employee on a regular basis; to use the probationary period wisely; and if there is any doubt at all about that employee-if they are not proving to be adequate-you have an outlet. You can extend the probationary period in discussion

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and agree on how the employee can improve themselves. There is absolutely no need to use the precipice of unfair dismissal eligibility for the promotion of employment relations. The two things are entirely different. To use it in this case is almost predictable.

The Minister spoke of generating jobs and growth by making it easier to sack people. In reply I would say: I don't think so. He also said, "We value the role for lay members". I am sorry, but that has a hollow ring to it. I do not think that they are valued, and I think that this is a way of further eroding their role. They are regarded as a bit of a nuisance and, slowly but surely, their role will be diminished over the years. Of course business wants the extension from one to two years. It is a bit like asking a child if they would like two bags of sweets instead of one. It is hardly surprising. Even the Government's impact assessment says:

"We are unable to infer the causality between Unfair Dismissal (UD) claims and changes in the qualifying period. There are a wide range of variables other than unfair dismissal qualifying period that will impact on the number of unfair dismissal claims such as claimant count inflow. In periods of recession when more workers are dismissed, unfair dismissal claims rise".

There is no objective justification. This is a purely political measure and we will live to regret both these measures.

5.15 pm

Lord Cope of Berkeley: My Lords, perhaps I may start on something with which I agree. The underlying measures-the tribunals and the unfair dismissal legislation-were introduced by the Conservative Government in 1971 by our late, lamented colleagues Lord Carr of Hadley, who, sadly, died the other day. The basic set-up introduced at that time will remain. These are comparatively small changes to the way in which they operate. However, I am sure that we can all agree that job creation is extremely important at this time-as has been said from all sides, at different times-and that we will hear a lot more about that in the context of the Budget later this week, for example, regarding the growth strategy and all that sort of thing.

In my view this is also a small contribution in the same direction, particularly the qualifying period, which I am talking about at the moment, and which I welcome. I have had a lot to do with small businesses in my professional life, although that was quite a long time ago, and in my political life over the past few decades. The whole difficulty of running a small business by comparison with a large business is that the proprietor is on his own and has to think about a variety of things. A large business has a finance director to argue with the bank; a production director to deal with the mechanics of whatever you are producing and doing; a sales director who makes sure that customers are as happy as possible, and all that side of it; and a human resources director to look after the employment side and to make sure that even a small business does not trip up over some of the complicated employment law which we now have.

I am not complaining about the complexities overall. They have all been introduced for various good reasons over time. I have been involved in much of that in

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different ways and I understand why the various bits have been introduced. However, they add up to an awful lot of things for someone who is running a business to worry about. In that context, a proprietor has to worry about hiring new people, the difficulties of hiring new people and the problems that it may get him into. When he is uncertain about his markets, his finance and the state of his business, that is yet another thing to worry about. This qualifying period arrangement is a small movement to assist him to worry slightly less about that.

Lord Borrie: Does the noble Lord accept that after an employee has been engaged for some 18 months, it is right for that person to be arbitrarily dismissed with no legal remedy of any kind?

Lord Cope of Berkeley: It depends on what he has been dismissed for or what the argument is about. Let us not forget that he still has a lot of rights which can take him to a tribunal; for example, a whole lot of things can apply if the dismissal has anything to do with gender, sexual orientation or any of those things. But there is the question of whether an individual will fit into and is necessary to the firm. The Minister referred to training. Whether the individual concerned has worked out as both sides had hoped is also extremely relevant. All that is important. No one is taking away the ultimate right of unfair dismissal. All we are doing is shifting the one year to two years, as has been outlined.

On the composition, I entirely agree with the noble Baroness who said that originally the idea was that tribunals would be rather informal. Unfortunately, it has not quite worked out like that. This issue has become more complicated and more judicial. I disagree as regards whether having more people on the Bench, as it were, makes it more judicial or less judicial. One can look at that in different ways. However, the intention is to make it easier to arrange sittings, particularly when they have to be rearranged, as everybody knows happens from time to time. This measure will help speed up the process and in so doing reduce costs not only for the Government but for the businesses and trade unions that are involved, as they will know where they are. It is hedged about with safeguards, particularly the big safeguard that either side can request a full tribunal with appropriate lay members. That can be granted, and no doubt often will be granted when there is reason to do it. Some cases will be speeded up by this process. Therefore these two measures are small-I do not claim that they will change the world overnight-but useful improvements to the system, particularly in the interests of allowing small businesses to employ more people.

Lord Monks: My Lords, the UK has the third most flexible labour market among the OECD countries. I would like to explore what that means. Does it mean that we have the third best labour market in the OECD? I am afraid that it does not. Does it mean that we have the third most productive labour market in the OECD? It does not at all. Does it mean that we have the third best trained labour market in the OECD?

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It certainly does not. However, it does mean that we are in third place in terms of employers finding it easy to fire people unfairly and get away with it. It also means that we are in third place as regards employers being able to exploit the vulnerable and those most at risk, who often comprise young people, women and those who have the least hope of securing stable employment.

The changes that the Government are proposing in these two orders might just get us into second place in the OECD most flexible labour market league table. They will promote poor practice as opposed to good practice and encourage people to do things quickly and peremptorily rather than properly. There are a lot of myths about dismissal legislation. We should not forget that these measures are about unfair dismissal. Employers will win the cases that are taken against them if certain simple procedural rules are followed, particularly in the areas of competence and behaviour. Equality cases tend to be more complicated but if an employer warns a worker about a competence or behavioural matter, gives him a chance to improve and then takes the final decision, the employer wins. That is the reality of the case law that has developed since those provisions were introduced for the first time by Lord Carr, as the noble Lord, Lord Cope, has just reminded us. Irrespective of whether he has a small or a large firm, an employer should follow the basic procedures of giving people a warning and a chance to improve before taking a final decision. That seems to me eminently sensible good practice.

The effect of these measures will be to take thousands of workers out of scope-but for what? I simply cannot accept the argument that employers are sitting there thinking, "I am not taking on another worker because the qualifying period is too short". I do not believe that it will lead to more recruitment and more jobs-although, as the noble Baroness, Lady Donaghy, rightly pointed out, if you are offering that to employers' organisations they are bound to say, "Fine, it is a free gift, we will take it".

I agree very much with what has been said on this side of the table about lay members, who have played a useful role in tempering the application of the law with some understanding of the realities of the workplace. I am glad that the employers' organisations tend to agree with the trade unions on this. With due respect to judges, the realities of the workplace have not been their particular area of expertise, and they acknowledge that they have been helped. This order makes it a grace and favour provision for the legal chairman to choose whether he needs the lay representatives. That seems undignified and unfair, and it weakens the employment tribunal system in a way that will not be fatal but certainly will do it some harm in the eyes of many.

These measures are shabby, squalid and rather mean-spirited. They will not do anything for employment or for the British labour market, except to make it that much worse than it is at the moment.

Lord Scott of Foscote: I apologise to your Lordships, and to the Minister in particular, for not being here at the commencement at this debate. I intended to be, because I remember seeing this statutory instrument

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when it came in front of the Merits of Statutory Instruments Select Committee, of which I am a member. I made some remarks about it then and I had intended to make the same remarks here. I hope that what I am going to say has not already been said by somebody else.

The point I wanted to make does not relate to the reduction to one year for the bringing of an application for remedy for unfair dismissal. Unfair dismissal is a statutory remedy, and as the two-year period was fixed by statute it can be changed by statute-or, as here, by statutory instrument. However, I do not understand why it is thought necessary to put up to two years the right of a dismissed employee to obtain a written statement of the reasons for his dismissal.

Whoever has been unfortunate enough to be dismissed, whether or not he has a remedy to make a claim for unfair dismissal-and after this becomes law he will not have a remedy-he will want to know why he was dismissed. He is going to have to go back into the labour market and try to make himself a better employee, not so subject to dismissal as he was with his previous employer. Common courtesy ought to entitle the employee to be given the reasons for dismissal. Why has he been sacked? He needs to be given a reason. There may be other courses of action he may have against his employer for which it would be relevant for him to know why he had been dismissed. I cannot understand the policy behind requiring two years' employment, rather than one year as previously, for the entitlement to be told why he has been dismissed.

I asked that question when the instrument was in front of the Merits Committee. Nobody knew the answer. My recollection is that the secretary of the committee went back to the department but did not get anything like a satisfactory answer. Perhaps the Minister could help with this. Why is it thought necessary to reduce the right of a sacked employee to be told why he has been sacked? Why must he be employed for two years before he is entitled to that very basic right, which ought to be a matter of common courtesy anyway?

5.30 pm

Baroness Prosser: My Lords, I would like to make a couple of points. When moving the proposition, the Minister talked about the responses from employers welcoming the possibility of extending the period during which a person would be on trial, so to speak. That is not exactly surprising, is it? The point has been made around the Room-my noble friend Lord Monks described it as a free gift.

I am reminded of when employers were being asked for their views on the introduction of a national minimum wage. Their response was that its introduction would bring about the end of life as we know it and there would be no jobs made for anybody. In fact, the absolute opposite occurred. The fact that employers are claiming that this will be of great benefit and will encourage them to hire more workers seems to fall pretty far short of producing any real evidence in that regard. I cannot see for one moment that introducing this change will increase the opportunities for people to find employment.

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Secondly, should this be introduced, women workers are likely to be hit harder than other employees, because, generally speaking, women change their jobs more frequently than men because of the pressures of other responsibilities. Can the Minister tell us if there has been any equality assessment of the impact of these proposals? Thirdly on the question of unfair dismissal, I would like to support the point made by my noble friend Baroness Donaghy. There would be much more to gain if there were more concentration on the need for management to be trained in how to manage.

The Chartered Management Institute assesses that only 13 per cent of people who are in management positions have ever had any training as managers, which is shameful. That would lead to difficulties when your employee is not up to scratch if after 12 months you could not say that they have had all the training they need. If the manager has had proper training, that matter can be dealt with in a way which is beneficial to the company, the manager and the employee. The cack-handed fashion in which a lot of these issues are dealt with is what leads to people going to the tribunal with a case that maybe is not as good as it might be, or people being dismissed for reasons which are completely and utterly unfair. Any manager who does not know whether an employee is good enough after 12 months needs to look in the mirror and ask who has the problem.

On the question of tribunals, I sat as a member of the Employment Appeal Tribunal for 11 years. When I worked in a law centre before I worked in the trade union movement, I represented people at employment tribunal level for six or so years. So I can speak with some experience of the value of lay members, and I can give two examples.

First, on many occasions, the judge has spoken to the applicant in such language that it is quite easy to tell that the applicant has not the vaguest idea what the judge is trying to tell him or her. So many times I have had to intervene and explain in words of one syllable what it is the person is being asked to do or to give further information on. Who will do that if there are no lay members on the bench? We will have people-who are not stupid by any means-but who are just not familiar with those kinds of phrases, that sort of language, those kinds of rules and regulations.

Secondly, on many occasions I had to explain to a judge whether a workplace situation that was being presented to the tribunal was something that was likely to happen, that was tolerable, or that would in the opinion of most people have led to certain dismissal or a very different outcome-because judges in tribunals do not have the experience of working on the shop floor or dealing day-to-day with people who work there. Not giving that information, advice and expertise to the judge, who no doubt has expertise of their own, would seem to be going down a path that is deeply unhelpful and could lead to decisions being made that are less than fair and less than accurate, and which do not take into consideration all the relevant issues. I hope that the Government will think again on these issues, but I will not hold my breath.

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Lord Jones of Birmingham: My Lords, as a Cross-Bench Peer I find myself, on this side of the Committee Room, looking across at the labour relations first XV. I feel like a full-back at Twickenham who has just shouted "Mine" with the sun in his eyes and the All Blacks coming towards him. Perhaps I may start by paying tribute to the noble Baroness, Lady Donaghy. When I was director-general of the CBI she was the chair of ACAS, and she did an incredibly good job. It is just a shame that we will probably disagree in the next five minutes.

The noble Baroness put it extremely well when she said that this was a political football. The Conservatives will vote for one year and Labour will vote for two years, as sure as the sun comes up in the morning. I am here to put neither case. I am not even here solely to put the business case, although I am sure that one or two noble Lords opposite will expect me to do so. However, if we in this country are to get ourselves out of the economic mess that was caused by so many contributory forces, we must trade our way out. We must generate jobs and wealth so that we make profits and pay tax, in order to reduce the deficit, build schools and hospitals and pay public sector workers what they deserve.

To do that, we must do two things more than anything else. We must be the acknowledged location of choice in the developed world for inward investment, and we must get smaller businesses in particular to take on one more person. Those two things on their own will generate a great deal of the wealth and the jobs that we need. For too long-I hope that the problems of the past two or three years have brought this into focus-successive Governments of both parties, as well as European legislation, have worked hard to help people in work keep their job, and have not concentrated enough on getting those who are out of work into it.

Whenever one talks to inward investors-Americans, Germans, Japanese; it matters not-they give one reason for coming here in greater numbers than anywhere else in Europe. We are number one by a mile-in the whole of the developed world we are number two only to America-because of what the noble Lord, Lord Monks, referred to as the flexible labour market. It does not mean that our workforce is the most productive, and certainly not that it is the best trained. In fact, those are both tragedies on which the noble Lord and I have often agreed. However, at the end of the day our reputation is that it is easier to deal here with mistakes of recruitment and the need to be mobile and light on our feet when it comes to maximising investment. It has to be easier on that basis to let people go.

Employers at that end of the game do not want to let people go because it costs a lot of money to recruit them. It costs even more money to train them. The noble Baroness, Lady Prosser, asked why managers in big companies are not well trained enough in the employment relations side of life. At the top end, especially with the overseas investors, you find that they are. They do not work on the basis of wanting to recruit people and thinking, "Well, I can get rid of them if it doesn't work". What they want is this aura, this feeling in the nation that we have a flexible labour

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market, of which only one little bit is this concept of an extension of more than one year. I do not want to get into the two years or one year because it smacks of tribalism. But these employers want the concept of being able to sort things out after a longer period than one year.

The noble and learned Lord, Lord Scott, has a point when he asks why someone who has been let go cannot at least receive written reasons as to why. That has nothing whatever to do with whether the period of time should be two years, 10 years or six months. A person is perfectly entitled to know why they have been dismissed both as a reference and as a reason for understanding. People do not like bad news but they prefer it to no news. In that respect, perhaps the Minister could go back and sharpen his pencil on that point.

One end of the labour market is about attracting inward investment; for example, Tata Motors is building a new engine plant in Wolverhampton, adding 1,000 jobs in a factory on a greenfield site. You will not see that in France, Germany or Italy. You would be lucky to see it in America. One of the reasons-although not the only reason by a mile-is the feeling that there is a flexible labour market, which includes being able to let people go.

Let me take the Committee to the other end of the labour market spectrum. Noble Lords who come from the Labour movement and the TUC will probably identify more with this and will find more fertile, efficient grounds on which to attack the proposition. The proposition is: can we get smaller businesses to employ just one more person and can we get smaller businesses to be this engine of employment growth in the nation? This proposal is dealing with making employers feel that they have the chance and the opportunity to make a mistake but will not fall foul of two or three issues that they are scared of every day.

One issue is of their own making. The noble Baroness, Lady Prosser, is absolutely right. The training qualification in management can be pretty poor. One of the reasons for that, as I heard here, is that on Monday, they are the finance director; on Tuesday, they are the sales director; on Wednesday, they are trying to clean the stairs; on Thursday, they clean the loos; and on Friday they go to see the kids. All that is seen as something that other people do until it lands on their desk because they have not gone through the right process and have not done it properly, and find that they have got a letter from the employment lawyer.

This proposal does not excuse in the slightest an effort that should be made by this Government, the CBI, the chambers of commerce, the Federation of Small Businesses and the local enterprise partnerships. Just like the CBI, the TUC finds it difficult but when it can it should reach into these places. There is no excuse for poor management of people at whatever level of employment or duration of employment. Small businesses fear that they are going to be caught up in something. Therefore, the default position comes in, which is that they will not employ someone. That is not always the case, but it is sometimes.

The second issue is the spectre hanging over the small business job market of constructive dismissal.

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So often the small businesses that these days I advise or champion tell the nightmare stories of people who handed in their notice; then, on the day before the three months or six months or whatever it was, the letter came in from the lawyer saying, "This person is going to say they were constructively dismissed. By the way, it is going to wrap you up in an employment tribunal. It is going to take your resource, time, effort and money. Tell you what, it could all go away now for a thousand quid". I saw loads of letters like that, all without prejudice.

5.45 pm

The abuse of constructive dismissal is a nightmare. It stops companies wanting to recruit people. It says, "Put it in the 'too difficult' box, I will get by without him". Right now we need small businesses to take the risk and take on younger people. This nightmare of abused constructive dismissal is absolutely full-square with enabling this piece of legislation to be another brick in the wall of the perception of small businesses that they are a bit freer to take the risk.

I heard that surely this was about giving employers a bit of extra help. With the current crisis in the labour market, I do not see this as giving employers extra help, any more than hurting employees. I would much rather put enormous pressure on small businesses to train their people better, and put pressure on government to help small businesses to go off into export markets where they are frightened to go. But in return we should say to them, "Look, we are helping you. Now you are a bit freer to recruit a few more people. We are actually removing one of the impediments that you perceive. In return, we want to see better training and if you do not do it, we will make you". This is not about the tribalism of employer or employee.

I think it was the noble Baroness, Lady Prosser-forgive me if I am wrong-who said that this smacked of the fight against the national minimum wage. I saw the noble Lord, Lord Monks, give me an ironic smile as she said it.

Lord Monks: It was a grimace.

Lord Jones of Birmingham: "Not on my watch, guv'nor". I was not at the CBI when that fight went on. That was the bailiwick of the noble Lord, Lord Turner, not mine. I always said, and I stand by this today, that it was a good thing to do, but the wage should never be set so high that people felt they could not afford it or it was inflationary. Because it has always been implemented very wisely, it has never had those two problems. We were fortunate that the economy had that Goldilocks aspect to it for many years after it was introduced. Many an alarmist employer would have said, "This will be the end of life as we know it", but certainly not this one.

I am not saying that if this measure is not introduced, inward investors will not invest or small businesses will stop employing. We are not in that alarmist territory at all. All I am saying is that making it more flexible will create some jobs. We must start looking after those out of work and getting them into work, instead of only looking after those in work.

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I am in favour of judges sitting alone, but only with the caveat that it is discretionary, that it will not always apply and that it will be left in the hands of the judge to decide every day. We have to get as much value for money as possible out of the system; we must not delay, obfuscate or obstruct. I would like to think that most cases will be heard with two lay people sitting with the judge. I think that will happen a lot and I am pleased that it will. But the judge should be given discretion. I will not fall for the argument that for some reason employment law is so special, specialised and expertise-driven that judges are not qualified to do this on their own. To my knowledge, most judges are not murderers, and yet they preside over murder trials without experts on either side. This is a special field, but so are many others.

Over the past 15 years we have lived through the continuing encroachment of employment legislation. I would love to know what the increase in employment tribunal hearings has been in the past 10 years. I do not know what it is, so I hope the Minister can provide me with that information. How many of those tribunals have involved people in the first or second year of their employment? I would love to know that. However, whatever those figures are, I know that a greater number of employment cases never get to a tribunal as the parties settle. The noble Lord, Lord Monks, said that good employers who have a good case will win at a tribunal. He is right, but the problem is the employer never gets there for anyone to find out. It is in a business's interests to settle as that stops it committing further resources, time and money to the case. That smacks of blackmail and of saying, "We won't let the system work no matter how well meaning it is because it is in the interests of wealth creation to get rid of a case". You thereby create a compensation culture, which is surely what we have to avoid at a time when we need to get some wonderfully skilled people into the world of work for the first time in their lives. If this provision goes just a little way down the path of doing that, it may not be an answer to a maiden's prayer but it will help us look after those who are out of work a bit better.

Baroness Gibson of Market Rasen: My Lords, I do not have the expertise in this area that many of my colleagues on this side of the Committee have. However, I am a former trade union official, as many noble Lords know, and therefore I am very interested in employment legislation. I should declare an interest in that my husband is a member of an employment tribunal. Indeed, he serves on the central London tribunal. I know that the Minister was lucky enough to go to that tribunal and meet members of it last week.

I wish to make two small points. My husband has served on an employment tribunal for a number of years and I have heard about the cases in which he has been involved and have reached my own judgment on what we ought to be doing in the future. Some of what is being proposed is bothering me. I am well aware that when employment tribunals were first introduced there were industrial relations problems in this country. One of the reasons for bringing in employment tribunals was the hope that they would be a more informal way

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of sorting out the difficulties that arose in industrial relations issues on both sides of industry. By and large, I think they have worked very well over the years. Unfortunately, we may now be heading in the other direction, and that worries me. Two points worry me particularly. The first follows on from what the noble Lord, Lord Jones, said about job creation. Obviously, I am in favour of job creation, particularly given the position the country is in at the moment. The noble Lord talked about small businesses. My background is in small business. My father and both sets of grandparents had small businesses so I am well aware of the difficulties that can arise when taking on even one extra employee.

I am a little surprised about this measure because last October the Government produced their own statistics which showed that only 6 per cent of small and medium-sized enterprises said that employment legislation was a problem in relation to taking on staff. I understand that about 1,100 businesses were consulted. This means that 94 per cent did not say that employment legislation was high on their agenda in terms of difficulties. There were other problems higher up the agenda. I am rather surprised that this issue is being brought up five months later as something that is definitely stopping SMEs taking on even one extra employee. That is something which, as the noble Lord, Lord Jones, said, I would support.

My second point concerns the expertise of those serving on employment tribunals. We in this House have all come here because of our background and expertise in different areas. It is exactly the same with those who serve on tribunals. It is not just important that a judge sits with one lay person from each side of industry to discuss issues and listen to the evidence put before them; the expertise also comes out when they get together in chambers behind closed doors to discuss what they have heard. I have spoken to judges and I know that they value employment tribunal members from both sides of industry. They value the advice of the lay members and they pick up things which, if they sat alone-whether they are a man or a woman-they would not pick up. I cannot see how one person sitting alone would be better than three people in these circumstances. Perhaps the Minister will give a little more detail on why the Government think that one person alone would be better than three.

Lord Hodgson of Astley Abbotts: My Lords, I support the proposals, which I consider balanced and sensible. I will declare some interests that are on the Register. I am a director of various companies that employ people. Therefore, we will take some benefit from the proposals if they are accepted. I believe that this would increase the likelihood that we would recruit people.

I read the debate that took place in the other place on Tuesday 13 March, but did not find it very helpful. An attempt was made to characterise the orders as a throwback to an earlier age, which was both unhelpful and unfair. Employers are not red in tooth and claw, as was suggested in the other place. The noble Lord, Lord Monks, asked why an employer, if they felt that they had a good case, did not just go through to the

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tribunal. The answer was given in part by the noble Lord, Lord Jones: it is the enormous time that it takes to get to a tribunal.

In the case I shall refer to later, it took a year to reach a tribunal and a further three months to get the case determined with a written judgment. A small business simply cannot wait for 15 months, with all that that implies for having to pay someone who is clearly disaffected. That is why you are going to a tribunal. There would be a difficulty in the system even if it were maintained as it is now. I do not argue that all employers are saints; far from it. However, as my noble friend pointed out in his opening remarks, and various other noble Lords have said, the basic protections for employees are maintained, with day one rights particularly in cases of discrimination, which are of particular relevance in smaller companies.

Why do I support the case for the extension from one to two years? All the businesses that I am involved with are hungry for talent, and hungry to keep a stable workforce. Hiring people is extremely expensive-and letting them go is expensive, too. It is expensive because they have to be replaced, and expensive in morale terms, because when people are let go, particularly in circumstances that are not their fault, the effect on the morale of the rest of the workforce is very great. By talent, I do not just mean the talent to shoot the lights out. I mean talent at every level to put in the time to carry out his or her allotted task with care, integrity and professionalism, to be a good colleague and team member, and to provide flexibility at times of strain within the organisation. In the business in which I am involved, when we discover that sort of talent at any level, we wish to nurture, engage with and develop it. We do this through the annual performance appraisal cycle. This is an important part of the reason we should extend it from one to two years.

6 pm

Each member of staff in our company has an annual appraisal which asks four questions: "How did last year go for you? What would you like to achieve over the next 12 months? What training or professional development do you need to achieve that? When we meet again in a year, how will we measure success?". From that follows promotions, salary increases, bonuses and so on. If we take the example of a firm with, say, a June year end, most of the work of the performance appraisal cycle takes place in May and June. That sets the objectives for the next 12 months. If you were to join the firm now, in March, the first time you will have a full appraisal cycle will be in May or June 2013. The appraisal cycle for this year will not be able to analyse how you have performed because you have not had any performance objectives set for you. It will be the goals and performance measurements that are set this summer that will come through and enable your performance to be measured a year later. So I have a very practical reason for supporting this proposal. We need an appropriate amount of time for an employer to see an employee work and gauge his ability to work continuously to the required standard.

Some noble Lords opposite will say that this will be very unpopular, but I think not. The real fury of people in the workplace is for those of their colleagues

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who they perceive as free riders-poor time-keeping, throwing sickies, work left undone, putting additional strain on the rest of the team. If through this procedure that sort of disaffection and those disagreements in the workforce are minimised, I think it is very important that we do this. We live in an age when some people, not many, are inclined to forget that employment is a contract-a two-way street of rights and responsibilities for both parties. If we are to encourage firms, particularly small firms, to take on more staff, they need the time necessary to establish a proper relationship of mutual trust and confidence.

Baroness Prosser: Is the noble Lord arguing that the best way to deal with "free riders", as he described them-whom I don't think anybody on either side of industry has time for-is through the extension of the period before protection comes along? Would he not agree that that is a really sensible argument for better management?

Lord Hodgson of Astley Abbotts: Clearly, it is an argument for good management. Identifying free riders is very important. Some people who promise quite a lot in the first few months are unable to sustain the work for various reasons. It is the performance appraisals cycle which sets deliverables and make it clear whether the person has delivered or whether the performance has, over time, drifted away and they have become a free rider. It is a sensitive interaction between what is practically laid down in the performance cycle and what management itself should be doing. There is no excuse for management not being prepared to grasp the nettle and make sure that any issue which clearly causes disaffection is tackled soon.

I turn to the employment tribunals order and the issue of whether a judge has the right to sit alone or can call for lay members. Based on my experience of the employment tribunals I have been involved with, the position has been that a judge has been able for the most part to undertake the work perfectly satisfactorily. I do not argue that this is always the case, but what does happen if you have three people sitting as opposed to one is that the time taken on the case is lengthened enormously.

Last year I was involved in a tragic case concerning an extremely talented man who had set up a small business in the video conferencing sector. I was not a director of the company but I had invested in it because I thought he was a rather talented bloke. Success had eluded him over a period of years and he had become increasingly irrational, and eventually the workforce of 10 to 15 people said to the directors, "It is either him or us. We cannot put up with him any longer". The company had an internal conciliation process and I, along with another investor, was asked to sit down and talk to the chap. We did so, although it took four or five months to organise that. It was clear that he could accept no criticism of his performance because as soon as we said that, yes, the company had made some mistakes in the process but he was majorly at fault, he said, "Fine, I am going to an employment tribunal".

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It took a year to set up the tribunal, which had three people on it. There was really no dispute about the facts or anything else. This chap, for better or worse, very sadly could not accept that anything was wrong at all. A case that might have taken one or two days took six days, and it took three months for the judgment to be concluded. The result was, frankly, a tragedy. He lost his investment and eight or nine years of his life, during which he had spent all his time working on the business. I lost my small investment, which was a pity, but that was nothing compared with the 15 people who lost their jobs. One felt that the situation should have been capable of being grasped faster, and could have been dealt with more quickly, if it had been handled by one person, not three.

I would say to my noble friend that whereas the consultation document states that the objective is to,

I know that there is no doubt that this case and many others that I hear about show that we are not as swift as we should be. If we are to have confidence in the system, we need swift justice because small businesses in particular find it extremely debilitating to have senior management devoted to preparing the case, sitting in on hearings, and in the mean time obviously having a disaffected employee.

I conclude by saying that I support the orders for the reasons I explained. They reflect my view of the changes that have taken place in recent years in both commercial and industrial practice, and they do so without weakening the safeguards we need to ensure that a proper equality of arms between employer and employee is maintained.

Lord Risby: My Lords, first, I apologise for arriving a few minutes late. In supporting the orders before us, I agree strongly with my noble friend Lord Cope. These are not issues that will change the industrial, commercial or employment landscape of the country, but they will certainly make a difference. I will refer to two articles in the papers today. One is by Mr Xavier Rolet, the chief executive of the London Stock Exchange. He points out that there are 4.8 million SMEs in this country, and asks us to "consider the impact" of what would happen if they were given an additional incentive to employ people-particularly young people, where we have a very big problem.

I was interested in the observation of the noble Lord, Lord Monks. Compared with many industrialised countries, we have a flexible labour market, but the truth is that in the eurozone, unemployment is running at 10.7 per cent while here in our country it is 8.4 per cent, which is still far too high. What is happening is that in terms of the UK's global competitiveness, the World Bank now rates our labour market 35th in the world-down from 17th in 2007. Of course it is absolutely right that we should have proper, civilised protection for people in the workforce. There is no question about that. However, there is a question of balance.

Perhaps I may draw your Lordships' attention to some issues for SMEs. I declare an interest as deputy chairman of a small business bureau. In the past few

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days I have spoken to a number of bureau members, to get their views on what we are discussing. I should add that in a previous life I ran businesses, both large and small, and so I know about the associated difficulties, particularly for smaller family businesses that employ between 10 and 30 people.

For SMEs, going to a tribunal is very time-consuming and stressful for both employers and employees. There is no question about that. However, as we heard from a number of noble Lords, for employers it can be a particularly difficult time. There is great anxiety in SMEs about taking on and retaining staff; I know that from experience. It comes on top of all the other issues such as access to bank funding, planning and management. Based on my discussions of the past few days, I suggest that if we can provide something that will give them a small additional opportunity to take on employees, we should support it. Certainly the CBI, the IoD and the British Chambers of Commerce said that the current arrangements were something of an inhibition to taking on additional staff.

It is certainly true that the world we inhabit at every level has become more litigious. For those people in a difficult economic environment, particularly in family businesses, this is a difficult time. That is why I support the orders. I will add simply that the CBI noted that SMEs accounted for 65 per cent of all new jobs created. Its view is that the extension to two years will be particularly beneficial to those without labour market experience. We all know about the tragedy of youth unemployment. As the economy recovers, if these proposals in some way encourage SMEs to feel that there are fewer disincentives to taking on young people in particular, I will support them-and I believe that they will.

I will turn briefly to the issue of tribunal composition. We need to remind ourselves of the discretion under the proposed arrangements. A full panel can exist in appropriate cases. I am not sure that it is appropriate for us to prescribe that that should be the case all the time. In fact, it is not. A principle was established by the previous Government, who decided to extend the scope of judge-only cases. Various surveys have taken place. In 2007 Michael Gibbons was appointed to review the circumstances under which employment judges could sit alone and add value for money.

Under the proposals, parties can consent to a judge hearing the case alone. There is no change there from the long-standing situation. The measures will put in the hands of the judge something that will give more flexibility. Some degree of judicial discretion, with defined criteria, will give judges an opportunity to decide, in consultation with those affected, whether to proceed on that basis. The order does not mandate the exclusion of panel members; it changes the basis for having them and will simplify the process.

I come back to my original point that we want a high level of protection in a civilised country. However, as the noble Lord, Lord Jones, said, we have a problem of international competitiveness. If it is possible through these measures in a small way to begin to deal with the

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terrific problem, in our country and the rest of Europe, of how to employ more people, I will certainly support them.

6.15 pm

Lord Jones of Birmingham: Perhaps I may make two points. I was reminded by what the noble Lord said that I had omitted to declare my interests. If noble Lords refer to the Register, they will see that I am a director of many companies that would benefit from this measure. I am sorry that I did not mention that at the beginning. Secondly, I apologise to the chairman and the Minister as I have a very long-standing private engagement at 6.15 pm quite a few miles from here and I am already very late. I am sorry that I will not be able to listen to the Minister's reply, but I shall read Hansard tomorrow with great interest.

Baroness Drake: My Lords, the Register of Lords' Interests will show my 25 years' membership of either the employment tribunal or the Employment Appeal Tribunal, so I declare that interest. I particularly want to speak to the issue of employment tribunal judges sitting alone on unfair dismissal cases because this measure has nothing to do with debates about job creation. The arguments on job creation are around the qualifying period for when entitlement to protection against unfair dismissal kicks in.

The impact assessment shows that lay members were paid a total of £9.78 million in 2009-10, so the measure that we are discussing is hardly a huge cost-saving exercise, and nor can it be a driver of the employment practices of small to medium-sized enterprises. I worry about the implications of moving towards an industrial jury system whereby employment tribunal judges increasingly sit alone in the heavyweight area of unfair dismissal. The impact assessment states that employment judges are competent to deal with the more "fact heavy" unfair dismissal cases. I fully recognise the competence of employment tribunal judges-their competence is not the issue, and I do not think that it is up for debate.

The noble Lord, Lord Jones of Birmingham, said that an employment judge could sit alone at a hearing because judges do so in murder trials. However, these are not criminal law cases, and the standards of evidence are not those of criminal law cases. That is the point. Employment tribunals are industrial tribunals based on the concept of a reasonable balance of probabilities and on all sorts of other concepts that have grown out of a judicial system that is focused on industry, not crime. The concept of industrial juries should not lose that importance. If one looks at the Employment Appeal Tribunal, the view is taken that employment tribunals have heard the facts and seen the relevant people, and that the decision taken is that of an industrial jury. Those decisions are not overturned lightly. There should be a compelling reason for interfering with an industrial jury decision. However, if it increasingly becomes the practice for judges to sit alone, the decisions will not be those of an industrial jury. The concept of an industrial jury, with practitioners from industry hearing industrial cases on a certain premise, will start to bring its own problems which may not be beneficial to employers.

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The concept of an industrial jury is very important for another reason-fairness. Many claimants see a panel of three people when they appear before the employment tribunal-somebody from the employer's side, somebody from the employee side and the judge. If the tribunal finds against the claimant, the impact of that decision is very powerful because everybody on that tribunal has found against him or her: but if the tribunal judge is sitting alone, the claimant is less likely to feel satisfied with the decision. I suggest that the claimant is more likely to want to argue with the judge and to pursue an appeal. The claimant will not receive the same powerful message as when an industrial jury makes its finding.

I turn to the concept of swift justice-what employers and particularly SMEs want. I will put the alternative proposition, which is that if you interfere with the integrity of the industrial jury concept in unfair dismissals, the number of appeals that will flow from that might well increase. The impact assessment states-on the basis of anecdotal rather than hard evidence-that when it comes to appeals made against the findings of a judge sitting alone as against those of a full panel,

However, we are moving to unfair dismissal cases with judges sitting alone, not the narrower issues that are weighted heavily towards payment disputes where judges currently sit alone. We are moving to the heart of activity in industry-disputes over whether a dismissal was fair or not-and taking away the industrial jury concept. There may well be a significant increase in the number of appeals. I must say, as a former trade union official, that if an industrial jury goes against you, you pause. I suspect that if an employment tribunal chairman sitting alone makes a decision, the disposition to go to appeal will be much greater. That is because you would be much more confident about disputing the findings of fact by an employment tribunal chairman sitting alone.

Unfair dismissal is a much more contested and emotional territory. The sense of getting a fair hearing in court is very important in terms of influencing the behaviour of claimants. The Government are unquestionably going to reduce employment rights through increasing the period before there is protection against dismissal to two years, and probably through more changes to employment rights that will come in the area of redundancy compensation. They are also looking to promote further the flexible labour market. It strikes me as unwise and counter-productive to seriously tamper at this point with the industrial jury concept. At the same time as people are getting anxious about the quality and availability of employment rights, the Government are taking away from the key area of unfair dismissal the guaranteed right of access to a tripartite industrial jury. That is a big risk for the sake of saving £9.78 million. I would not take it.

It says in the impact assessment-although I cannot find exactly where-that if claimants are not happy about a judge sitting alone hearing their case, they can put their reasoning to the judge as to why there should be a full panel. Some claimants who come before a tribunal are barely capable of prosecuting their own case, particularly if they are lowly paid or if English is

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not their first language. The idea that they can mobilise a set of arguments in support of why they should have a full panel as opposed to a judge is laughable. Equally, claimants who are unrepresented and put their own case, even if they are not in low-paid jobs and English is their first language, will be anxious and will not feel confident about legal procedures. They probably will have no idea of how to mobilise a set of criteria on whether their case should be heard by a judge alone or a jury sitting as a panel of three.

On the argument that there will still be judicial discretion as to whether a tribunal judge should sit alone or with lay members, the tribunal judges will be under their own pressures. They will be under pressure to keep costs down and to get the throughput of cases. I suspect that a tribunal judge who allows too many full-panel sittings will be called by the regional chairman and asked why his productivity statistics are lower than other people's.

I worry seriously that at the same time as employment rights are being reduced-we may well see them further reduced-the concept of the industrial jury is under attack. One cannot have a concept of an industrial jury unless two lay members representing the two participating sides of industry are also representatives on those tribunals. Anybody with experience of dealing with unfair dismissal cases knows how, in the majority of cases, they can be very fact heavy, very contested, very emotional and very influenced by what is reasonable or normal practice in that industrial context. An intellectually brilliant employment tribunal judge may not have an understanding of what is ongoing or normal industrial practice in a particular industry.

Lord Whitty: My Lords, I have left most of the detailed points to my front row. But the essential point that the Government need to address, which they have not done convincingly, is the point of evidence-evidence not anecdote. The noble Lord, Lord Jones of Birmingham, is undoubtedly right that when two or three businessmen are gathered together, the evening rarely ends without some complaint about employment legislation. But does that seriously change their behaviour? There ought to be that evidence because, as the Minister said at the beginning, we have changed the qualification period several times, both in general and in relation to the size of firm it applies to, from 1971 to 2012. We are therefore talking about 40 years of potential evidence that the qualification period made a significant difference to the way in which employers approached staff recruitment.

My colleagues have referred to huge problems concerning fairness, justice and the behaviour of management towards employees. There are also issues in terms of the behaviour of individuals towards employers. But the central economic point which would justify such a change in the regulation is whether that leads to fewer people being employed. In general parlance, it would seem a very strange move by the Government to suggest that we increase employment by making it easier to sack people.

However, there is no evidence to the contrary. No change is identifiable. We have a whole impact assessment of God knows how many pages here, which not only says that we are unable to establish whether the number

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of cases changes as a result of a change in the qualifying period, but there is not one word about whether recruitment or a decrease in employment follows a change in the qualification period. Unless it does, the central broad argument that the noble Lords, Lord Jones and Lord Cope, the Minister and others have put to us-that this will have a significant effect on the propensity of employers to take on new labour to help solve the youth unemployment problem-must fall. At best, it is unproven. There is a lot of anecdotal evidence, but no statistical evidence.

A lot of other issues affect employers' behaviour. But, over that 40 years, with very clear break points in the qualification period, one would have hoped that the statisticians available to the department would have been able to exclude or at least minimise the effect of those other considerations and have been able to identify that a clear change took place in the propensity, particularly of small businesses, to take on more employees once the qualification period had changed.

6.30 pm

I am sorry that the noble Lord, Lord Jones, is no longer here-he entertained us, as ever, with his contribution-but international investors must look at the totality of the labour market regulatory framework. As my noble friend Lord Monks has said-and others have partly concurred-we have a relatively flexible labour market. It is unlikely that this small point of labour market regulation in terms of the qualification period is going to change the attitude of serious international investors considering whether to locate in the UK, Germany or South America. It is not a credible argument.

At first sight, the argument has more credibility in relation to small businesses, but despite the anecdotal returns that we have had and all know about-you can hardly go into a saloon bar in the home counties without hearing them-the statistical evidence for the reality of the labour market employment levels does not bear out the Government's case. Unless the Government can produce some evidence of that sort, this just becomes part of the worrying picture of the Government's attitude in relation to access to justice as a whole.

We are, in parallel, talking about the legal aid Bill and the scope of cases that will be excluded, and the ability of those of small means and little power to have access to justice. If, in the employment field, we are also about to deny these nearly 3 million people some small access to justice, then frankly there has to be a hugely convincing economic argument for so doing. I am afraid that the Government have come nowhere near to making one. I suspect, because it is not in the impact assessment to any degree, that they do not have that evidence. I therefore hope that the Minister can address this issue when he replies.

Lord Lea of Crondall: My Lords, following the same line of thought as my noble friend Lord Whitty, the section of the document beginning on page 25, which is headed:

"Resolving Workplace Disputes Government Response: Overarching IA Evidence Base",

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kicks off by saying that the "Problem under consideration" is that "Employers are worried"-employers this, employers that and employers the other. That is what you might call the Mandy Rice-Davies approach to evidence-it may be good or it may be bad but it is not what most of us would be looking for when we think about evidence.

On page 28, after it says:

"The Government will therefore commission an independently chaired fundamental review of the relevant procedural rules, and will ask the judiciary and other stakeholders to play a full part in that review process",

paragraph 18, which is what I would like the Minister to comment on, says:

"There is therefore little to be gained by introducing major rule amendments now that may shortly be undone or altered as a result of the fundamental review. Further, reform at this stage should seek to avoid any risk of introducing more inflexibility and prescription when that is what the fundamental review is designed to strip away".

Then there is a sentence that I think can be translated slightly differently from what is on the page:

"However, after an assessment of the evidence submitted in response to the consultation, the Government believes that a more limited set of reforms can be implemented without awaiting the review's recommendations".

In other words, as I read it, "We have got a political doctrine that is fundamental to the nature of what you might call the evidence". Whether or not that is what a judge would normally consider to be the sort of evidence on which a jury should take a decision is rather problematical.

The other point I wish to make relates to that. The anecdotal nature of what is being said is not the way in which you would expect the two sides, if I can call them that, to relate to each other. One anecdote is worth as much as another. That is why the system of Explanatory Notes introduced some years ago is vital to getting good legislation and why we should be very careful about the nature of evidence.

Finally, on a slightly different plane, the noble Lord, Lord Jones of Birmingham, and other noble Lords on the other side have made very general remarks about the monstrous flow of legislation that is making life difficult in this country. If one looks at employment and unemployment in Germany, where the mittelstand offers much more in the way of management training and so on than we do, one wonders why the Government's kneejerk reaction to almost any problem is to listen to employer's anecdotes and to accept them as the main base of evidence. The Prime Minister now says that it is a good idea to take a look at Germany. If the Germans saw the basis on which we take our decisions about employment and what generates employment, I do not think that they would see other than a caricature about what you might call a "top-end" and the "well mannered dog business". We have a vast number of mittelstand-type businesses in this country and many of them are undertrained. It is a long process, but this kneejerk recourse to the worst sorts of politicking with the British industrial system is not a creative solution.

Lord Razzall: My Lords, it looks as though I have to declare those interests and companies that I have set out in the Register of Members' Interests, although

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whether they will benefit from the passing of these orders will depend on whose arguments are correct. I have some sympathy with the points that have been made from both sides of the Committee-although having read particularly the debate in the other place, one would have thought that, from the Labour side, these proposals were going to take the country back to the days of the Tolpuddle Martyrs and, from the government side, that all the problems of unemployment in this country will be solved by passing this order.

I do not share either of those views. This is not part of an agenda designed to take us back to the dark days of poor trade union relations or poor employment relations. I have every confidence in the Secretary of State, who happens to be a member of my party, to ensure that that will not happen. As the noble Lord, Lord Whitty, and one or two other Members on that side have indicated, there is a danger that one can overstate the opportunity for passing this order to extend the period of unfair dismissal from one year to two years. One can overstate the argument. Indeed, as the noble Lord said, most of the evidence in the survey saying that this will have an effect is anecdotal. He put it rather well when he said that if you get three employers having a drink in a pub-I do not know why he picked Hertfordshire-that is what they will complain about.

However, as someone who has been involved for a number of years in the SME sector, I believe that there is a marginal case here for saying that employers are nervous of taking on new employees in small businesses because of the impact of the unfair dismissal rules. There is a case for saying that if they were marginally relieved from one year to two years, people would be taken on.

One point that has not been made is that there is very little evidence that under the current one-year rule many unfair dismissal cases are brought by people who have worked between one and two years. There are very few such cases, which leads me to think that what happens is that people take advantage of the one-year rule to lay people off before they get into the unfair dismissal bracket. If we extend that to two years, action will not be taken until they approach the end of the second year, which will add employment of a further year for people who have been taken on. It will also mean that if somebody knows that they can get rid of somebody who turns out not to be very good before the end of two years rather than one, in some cases they may be more prepared to give that person appropriate training that will keep them in employment for longer.

I will make a point about the context in which the orders were put forward. One does not have to be privy to the inner secrets of government-one just has to read the newspapers or watch television-to realise that a huge battle is going on over how our employment legislation should be framed. Mr Adrian Beecroft has been commissioned to look at the laws. He starts from the proposition that almost all employment regulation and restriction should be swept away. On the other hand, a number of people in both governing parties want to see a significant improvement in family-friendly policies such as paternity leave and maternity leave.

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While the battles rage, I very much hope that noble Lords will come out on the right side of the arguments. There is no doubt where I stand on them, and I suspect that there is no doubt where the Secretary of State stands on them. If the proposals come to your Lordships' House, I hope that they will be resisted. In the mean time, this is a modest proposal, and if it is the price we pay for averting something that might be a lot worse, I urge noble Lords to accept it.

Lord Young of Norwood Green: My Lords, I thank the Minister for his introduction, even if I did not agree with most of it. It will be no surprise that we oppose the proposals both on unfair dismissal and on lay members. I could not help smiling when the noble Lord, Lord Razzall, suggested that there was some overegging of the pudding. It is true that I could not find the transportation clause in the impact assessment. However, that is not to say that the measure will not have a profound effect.

My premise for being so opposed to it is that if one wants to give small employers-the measure is focused on them-some help and assistance, is this really what one wants to focus on, rather than the quality of management? I could not help reflecting on that. The noble Lord, Lord Hodgson, spoke about waiting for the annual appraisal. With a new recruit, would that be the first time one gave any assessment? As a small employer, it would be one's first problem if one waited until the end of the year. One would need to look at a new recruit a lot earlier than that.

My noble friend Lady Donaghy pointed out that a probation period can be extended and that therefore this is not the best bit of advice one could give a small or medium-sized employer. Where they make mistakes is in the quality of management. That is why so many employment tribunals are seen as almost a fait accompli because they know that they do not have a proper set of procedures. I have seen that on many occasions. We have even seen things like the failure to issue a contract of employment. I encountered many people who have complained about the terms of their employment, but when I asked them, "Where is your contract of employment?", they said that they did not have one. When we have management failure on that basic level, saying that extending unfair dismissal will encourage them to hire more people means, to me, that the Government really cannot see the wood for the trees.

6.45 pm

On creating growth in jobs, taking away the employment rights of low-paid and vulnerable employees-I do not want to exaggerate, but it is certainly a significant removal of rights-is no substitute for a proper strategy for economic growth. Growth has flatlined not because of the UK's unfair dismissal regime, as my noble friend Lord Monks pointed out, but because of the failed economic policies of this Government. They are cutting spending and raising taxes too far and too fast and they have a narrow mindset on employment law that will not serve the interests either of business or of employees. Even the Secretary of State himself has already said that the UK has a relatively flexible labour market with a good

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balance between rights and flexibility. Perhaps the most damning assessment of this change, as my noble friend Lord Whitty and a number of my noble friends pointed out, is that there is no objective evidence that employers will be encouraged to hire more people once the qualifying period increases. Rather than making it easier to fire people, Ministers should be doing all they can to make it easier to hire them.

The history of the qualifying period for unfair dismissal is interesting. It has fluctuated over the decades, as several noble Lords have said. However, there is no evidence to show that that has had a direct effect on employment levels or that a shorter qualifying period has led to a loss of jobs or constrained recruitment decisions. In fact, since the qualifying period was reduced from two years to one in 1999, more than 1,750,000 extra jobs have been created in the UK. We can juggle with statistics, of course, but our side of the argument is that the reasons the Government have adduced for this change are not evidence-based. Indeed, recent research undertaken by the Minister's own department confirms that most employers do not perceive the current level of regulation as a major constraint on growth. The October 2011 SME Business Barometer survey asked 500 SMEs about their main obstacle to success. The state of the economy was cited by 45 per cent as the biggest obstacle; obtaining finance came next, mentioned by 12 per cent; after that came taxation, cash flow and competition. Just 6 per cent of respondents listed regulation as the main obstacle to growth. If what the Government are saying is right, one would have thought that those percentages would have been reversed. It is a weak evidence base.

The other argument made by the Government is that the change is necessary because of the large increase in employment tribunal claims. That is not supported by the Government's own evidence, which shows an 8 per cent fall in ET claims from 2009 to 2011, with the figures showing a further fall this year. The figures used by the Government to demonstrate a significant rise in ET claims relate to multiple claims, which are mainly concerned with equal pay and working-time directive issues. There have been large numbers of those and we all know the cases that have caused that problem. However, they are not unfair dismissal cases.

I am going to chop some of my contribution because I am conscious that a lot of things have already been said, but I was interested in what was said by the Chartered Institute of Personnel and Development, which must be given some credibility. The institute's HR experts have said:

"Making it easier to dismiss staff without due cause is far more likely to harm the prospects of UK plc by fostering crude and out-dated attitudes to employment relationships that will put employees off from 'going the extra mile'. Unproductive and disengaged workers will cost firms far more than the threat of tribunals".

I think that is just about right.

There are also some worrying unintended consequences. There is a real danger that the change in qualification period could have considerable unintended consequences that could be catastrophic for business. I would like to focus on three areas. The change is likely to lead to an increase in the number of discrimination

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claims. Employees and their advisers will inevitably consider what alternatives may be available following a contested dismissal within the first two years of employment. It is likely that many claims which would previously have been brought as unfair dismissal claims will be brought as discrimination claims. There is no qualifying period for these. They are "day one" claims.

There are now nine protected characteristics covered by the Equality Act 2010, including age, disability and gender, among others. I will not go on; we are familiar with most of them. The Chartered Institute of Personnel and Development stated in its submission to the resolving workplace disputes consultation that evidence from its survey suggested that employees were increasingly bringing claims linking unfair dismissal with discrimination. I do not think that we have the right solution to the problem.

This issue is not at the top of the agenda of SMEs. As I said earlier, if we really wanted to give them some helpful advice, it would lie far more in the direction of management training, as I think my noble friend Lady Prosser said. That is where many of the failures originate. Tackling that issue could diminish the number of cases going to employment tribunals, increase productivity and promote all the other things that good employers want to encourage.

I thank the noble and learned Lord, Lord Scott, for his comments. I am just as interested as he is to hear the Minister say why it would be a good idea not to have to give a reason for dismissal after a two-year period. That flies in the face of all good practice and fairness, and I find it astonishing. It is argued that extending the relevant period to two years will impact more heavily on women and young people. Some 59.2 per cent of all employees aged 24 and under have worked for their current employers for less than two years. Some 1.4 million part-time female employees have less than two years' tenure with their current employer, compared with 0.6 million part-time male employees.

I do not believe that the measure's impact on women and young people can be justified in any way. The same thing applies to black and ethnic minority employees. There is significant evidence in that regard too. There is also the wider issue of fairness. The reason given for dismissal may be regarded as unfair by any objective bystander but no claim can be brought in the relevant timescale. However, a year is quite enough for an employer to decide whether someone is a "good fit". The election manifestos of both the Conservative Party and the Liberal Democrats made no reference to these proposals.

I wish to make a brief reference to the lay members, not because I think they are unimportant but because my noble friend and former work colleague, the noble Baroness, Lady Drake, explored many of the arguments, as did my other noble friends. Given the length of this debate, I do not think that I need to add much more to the case that they made except to say that in my experience-not actually having participated in employment tribunals-the value of their contribution as lay members or even as witnesses is extremely important.

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I would be more than interested to hear the Minister's response to what I believe is a valid series of objections to the proposals, which will not do what the Minister suggested when he said, "We are going to ensure more job creation and lift the burden of employment law". I do not know whether that was a Freudian slip, but employment law should not be seen as a burden but as part of the rights and responsibilities of employees.

The Minister went on to justify it by saying that highly skilled people need longer to assess. Again, I do not know where the evidence is for that assertion. I do not believe there is any. Whether an employee is highly skilled or less skilled, they need the same amount of attention if you want to create the right atmosphere among your workforce and you want to get the best from people. We believe that these proposals are ill founded, will not do what they set out to do, and indeed might have significant unintended consequences, which will do nothing to increase job creation but will unfortunately impact on employment rights in a very negative way.

Lord De Mauley: My Lords, I am very grateful for all the comments from all around the Committee. I will attempt to answer all the questions. I hope your Lordships have some time available because it might take a while. If I do not manage to answer all the questions, I will, of course, write with a considered response.

The Unfair Dismissal and Statement of Reasons for Dismissal (Variation of Qualifying Period) Order is especially necessary for businesses employing people who need to possess a high level of skill. The noble Lord, Lord Young, picked me up on that a moment ago, so let me say a few words about that. Given the importance to the nation's future growth-which my noble friend Lord Cope spoke about-of value-added products, services and exports in areas such as clean technology, biomedical science, high-tech manufacturing and ICT, as well as many seemingly quite mundane businesses which nevertheless rely on some complicated technology, the quality and depth of skills are vital to an ever increasing number of firms.

I am speaking from personal experience of running an IT business. For those employees who have yet to gain the full skill set necessary, frequently a lot of time has to go into training and assessing whether they have the aptitude to learn the skills and carry out all aspects of the job. For employees who arrive with that training, it can still take quite a long time to assess whether they really do have the skills they claimed on their CV, particularly, as is often the case, when the employer or manager's own field of expertise is different from the employee's.

There are two further important factors. First, most employers would want to give someone the chance of continued employment for as long as reasonably possible. However, it is a fact that, under the current regime, some employers decide that it is not worth the risk of retaining someone beyond the end of the first year if there is an element of doubt that they will make the grade. Secondly, as the noble Lord, Lord Jones, said, it is important to have in mind the expense and time involved in recruiting a new employee. It was one of the things that took up most of my time as my

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business expanded. No one in his right mind would dismiss such a skilled employee if he did not feel he had to, so giving the employer a further year to make up his mind is certain to save some people's jobs.

The noble Baroness, Lady Turner, asked how we justify the change when the evidence is that it will disproportionately affect young people at a time of high youth unemployment levels. Our top priority is to boost business confidence to take on staff. Young people out of work will benefit from increased employer confidence to recruit. We are serious about tackling youth unemployment. On 15 December 2011, we set out our strategy for helping young people to access education, training and work, and this strategy includes measures to offer more and higher quality apprenticeships, and a youth contract to help get young people learning or earning.

7 pm

The noble Baroness, Lady Donaghy, who spoke particularly sensitively, spoke favourably of the role of ACAS. I strongly agree with her. We recognise the important role that ACAS plays and are committed to providing parties with the opportunity to resolve disputes before they end up at an employment tribunal. That is why we are widening the function of ACAS to include early conciliation.

The noble Lord, Lord Monks, said that it was perfectly possible to dismiss an employee on the fair ground of poor capability. Undoubtedly there is work to be done to increase the understanding among employers of employment legislation and dismissal rules. This is a priority for the department. We have already announced initiatives that seek to improve understanding of employment regulations such as the Employer's Charter. However, it does not change the fact that businesses and business organisations tell us that dismissal rules are a barrier to recruitment. The evidence includes, for example, large surveys by the British Chambers of Commerce and the Institute of Directors.

The noble Baroness, Lady Prosser, and the noble Lord, Lord Young, suggested that the measure would disproportionately affect women at a time when the Government repeatedly stress how important it is that women are in the workplace. We do not agree that there is a disproportionate effect on women. There is a 1 per cent gap between the number of women and men with one to two years' service. The gap has narrowed consistently in recent years. Surveys of employment tribunal applicants show that men are more likely than women to launch an employment tribunal claim. In answer to the noble Baroness's question, there is an equality impact assessment, and it is available in the Libraries of both Houses.

The noble Baroness, Lady Prosser, and the noble Lord, Lord Jones, spoke about the importance of management skills. I strongly agree with them. It is something that the Government are determined to address. However, the issue is not all about management. There will always be cases where no amount of management skill will make someone the right person for a job. This measure will allow employers more time to determine whether that is the case. It will also give them time to help the employee fit the role that they are filling.

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The noble Lord, Lord Whitty, asked for evidence that the measure would help businesses employ more people. A number of surveys have been conducted. The British Chambers of Commerce 2011 survey of small firms covered regulation. It found that of all the areas of employment law which were perceived by those running businesses as burdensome, dismissal rules were far and away the greatest concern to businesses employing more than five employees: of greater concern than the regulations governing health and safety, equality, flexible working, sickness and training. The noble Lord is right that the benefits associated with improvements in business confidence are difficult to quantify because a huge range of factors affect levels of employment, and the effect of a single regulatory change cannot be isolated. However, that does not mean that the benefits are immaterial.

The noble Lord, Lord Lea of Crondall, too, referred to the issue of evidence. It is probably worth repeating that perception is as powerful, if not more powerful, than evidence in driving the behaviour of individuals and businesses. It is perception-the fear that taking on a new member of staff may lead to an employment tribunal-that we are tackling with this measure. Several noble Lords mentioned that.

The noble Lord, Lord Young, referred to the Government's focus on small and medium-sized enterprises.

Lord Lea of Crondall: I am grateful to the Minister for giving way, but he has changed the ball park completely now. Instead of saying that we have evidence, he is saying that we have a problem of perception. If there is a problem of perception, it is the Government's job to change the perception, unless it is evidence.

Lord De Mauley: Exactly, and that is what we are trying to do.

The noble Lord, Lord Young, referred to the Government's focus for growth on small and medium-size enterprises, for which the impact of a tribunal case is often greatest. This measure is intended to deliver a decrease in the number of cases being lodged against small and medium businesses. A two-year period will also give them enough time fully to assess new members of staff and to benefit from skills retention in cases where they might otherwise have dismissed an employee in borderline cases because they do not have the access to sophisticated HR and legal resources.

The noble Lord, Lord Young, also suggested that this could lead to an increase in the number of discrimination cases. I do not buy that assertion. Already, discrimination actions are frequently brought simultaneously with unfair dismissal claims. That suggests to me that, if a discrimination claim has a reasonable chance of success, it is already being made. Indeed, because there is a time limit on making such a claim, it is already now important that, if a discrimination claim is to have a chance of succeeding, it is made simultaneously, so we cannot see that reducing the availability of unfair dismissal as a route will lead to a significant increase in discrimination claims.

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The noble and learned Lord, Lord Scott, asked about the changes to the written statement of reasons. The statement of reasons is linked to the qualifying period and the specified fair reasons for dismissal, which are set down in law. The objective of the qualifying period is to provide both parties with time to get the working relationship right. If it does not work out, this will not necessarily correspond to one of the specified fair reasons for dismissal. Of course, the employee can ask for a written explanation and I cannot see any reason why an employer would not provide it.

Lord Scott of Foscote: Would not a reasonable solution be to say that the period of notice to which the dismissed employee was entitled would not begin to run until he had been provided with a statement of the reasons for his dismissal?

Lord De Mauley: Perhaps I may take that back to the department. I cannot give the noble and learned Lord an answer immediately, but I will write to him, if I may, on that. I am grateful to him for the suggestion.

The noble Lord, Lord Jones, spoke about SMEs taking on employees. He is absolutely right to focus on the benefits that this measure might bring. If every small business took on just one more person, there would be 4 million more people in employment.

The noble Baroness, Lady Gibson, and the noble Lord, Lord Young, pointed to BIS's survey, which shows that 6 per cent of business view regulation as a barrier to recruitment. In fact, the SME Business Barometer asked small businesses what their main barrier to growth was. The survey does not show that businesses are not concerned about regulation, but business responses to consultation and employer representative surveys on the matters that we are discussing today clearly show that dismissal rules are a concern when recruiting staff.

On the draft Employment Tribunals Act 1996 (Tribunal Composition) Order 2012, calls for reform of the employment tribunal and the wider employment law landscape are not new. In so far as the role of lay members is concerned, Michael Gibbons recommended to the last Government in 2007 that they should review the circumstances in which employment judges can sit alone in order to ensure that, as my noble friend Lord Cope said, value is maximised. The British Chambers of Commerce recommended in 2010 that lay members should be abolished. Since then, survey evidence suggests further support for reform in relation to unfair dismissal hearings. For example, 87 per cent of clients responding to Pinsent Masons's 2011 employment tribunal survey supported the Government's then proposal to allow judges to sit alone in simple unfair dismissal proceedings. Academic research from Greenwich and Swansea includes some interesting data. For example, despite perceptions from judges-the noble Lord, Lord Monks, specifically referred to this-and members that members add value in unfair dismissal cases, the number of instances where panel decisions were anything other than unanimous was very small. Across a sample of 191 judges who all hear cases on multiple occasions, there were only 77 majority decisions,

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of which 60 had one or other of the lay members as the dissenting voice. Given the safeguards built in, with judges retaining the option to determine whether lay members are required in order to deal with the case justly and with judicial decisions made against statutory criteria, including an assessment of the wishes of the parties, the additional flexibility would allow the tribunals to obtain best value for money when deploying lay member resources.

Employment judges are already permitted to sit alone in a range of proceedings, including claims for breach of contract, unauthorised deduction of wages, certain redundancy and national minimum wage complaints, and "holiday pay" cases. While the range of such cases will increase under this order to include unfair dismissal cases, the use of lay members will continue. There is no plan to remove the role of lay members in employment tribunals entirely. The Government recognise and value the expertise which they bring to the system. This order is about replacing prescription with flexibility. It costs the taxpayer more than £80 million a year to fund the employment tribunal system. Lay members account for about £10 million of that sum. It is right to look at how the system deploys and utilises the expertise lay members bring so that they are deployed where they are most needed.

The noble Baronesses, Lady Turner and Lady Donaghy, referred to the fact that the Trades Union Congress believes that the proposal to remove lay members from unfair dismissal cases is a step too far. The TUC asserts that the Government want to remove lay members from unfair dismissal cases, but that is not the effect of the order being debated. As I have said, this order gives judges discretion. Lay members can and will be deployed if they add value, but judges will be able to sit alone wherever that would be better. Where lay members would not add value, it is not right that inflexible legislation should mandate their deployment anyway.

The noble Baronesses also referred to the fact that 63 per cent of those responding to the consultation opposed it, which I acknowledged in my opening remarks. Our consultation was not a referendum, nor should government consultations ever simply turn on weight of numbers alone. We set out proposals and looked to find evidence on the substance. Nothing that consultees said persuaded us that employment judges are not best placed to determine how an unfair dismissal case should be determined, particularly when it is the judge who has the circumstances of the individual case to hand, and not your Lordships when considering framework legislation. We acknowledge that there are some unfair dismissal cases, such as those where there is a significant dispute around the facts of the case, which might be more appropriate for a full panel to hear. Indeed, this was accepted in the consultation paper and our response document. But there will equally be claims which an employment judge sitting alone will be perfectly well qualified and able to determine.

The noble Baroness, Lady Prosser, suggested that there was a risk that employment judges are insufficiently in touch or in tune with industrial good practice.

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Employment judges come from a wide variety of backgrounds and many have practical experience of managing staff. The fact that a judge might not be in tune with industrial good practice does not necessarily make them less likely to be able to assess evidence. What is critical, irrespective of the nature of the proceedings, is that the person making the determination is able to assess the evidence presented to him or her. Employment judges are trained specifically for this purpose and they carry out their functions to the highest of standards. In fact, the academic research from Greenwich and Swansea suggests that lay members may not always have relevant and recent experience in industry themselves. Indeed, it reported that there was a broad perception that they had less direct workplace experience than previously may have been the case.

My noble friend Lord Hodgson asked whether it was the Government's view that judges sitting alone will speed the process up. We certainly intend that it will. We will be monitoring that closely. The noble Baroness, Lady Gibson of Market Rasen, asked how one person can be better than three.

7.15 pm

Lord Hodgson of Astley Abbotts: My Lords, the point about speeding up refers to speeding up the process as a whole. I agree with that point but if the Minister's department can spend some time trying to make the wheels of justice grind faster, it would be very helpful. Small firms find this long elapse period very debilitating.

Lord De Mauley: I am most grateful to my noble friend for that point and we will certainly bear it in mind. As regards the point made by the noble Baroness, Lady Gibson, about one person being better than three, her noble friend Lady Donaghy said that the Government's support for lay members rings hollow. But I assure noble Lords that we value lay members, as do employment judges, as the noble Baroness, Lady Gibson, and others have said. Judges will sit with lay members where they add value. Judges are expert in employment law and they see cases every day. But, as the noble Lord, Lord Jones, said, value for money is important.

The noble Baroness, Lady Drake, said that the industrial jury concept should not be disturbed and suggested that the tripartite panels give confidence, legitimacy and authority to the tribunals. In common with all other types of complaint that might be heard by an employment judge sitting alone, the judge will have, as I have said several times, discretion where he or she thinks it necessary to choose to sit with lay members. Despite the scepticism of the noble Baroness, this discretion, alongside the professionalism and expertise of employment judges, which stakeholders from all perspectives have recognised, should mean that all users maintain the same high levels of competence in the system as now. Civil courts up and down the land have lone judges making decisions and that is not just in criminal cases, as the noble Lord, Lord Jones, mentioned.

The noble Baroness, Lady Drake, also suggested that the potential benefit may not be worth it. Predicting what savings will be made across the 10,000-plus unfair

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dismissal complaints heard each year is difficult, given the need for judges to exercise discretion and assess what cases might require full panels. The savings, which were conservatively estimated in our impact assessment, might not be considered significant but as a Government we must take all measures to ensure that taxpayers' money is used to best effect.

The noble Lord, Lord Lea of Crondall, who quoted the impact assessment, asked why we are legislating now rather than waiting for the Underhill recommendations. The terms of reference for the Underhill review relate clearly to procedural rules. The constitution and composition of the tribunals, as distinct from the procedural rules, particularly given the resource implications associated with judicial and member sitting, is a matter properly for Ministers and for Parliament. Furthermore, there is no reason to await the outcome of the Underhill review when the Government have concluded that there is a case for change.

The noble Baroness, Lady Turner, asked about fee charging in an employment tribunal. Although this is not one of the matters we are principally discussing today, let me say that most people will never use an employment tribunal in their lives; yet the taxpayer funds the system at a cost of £85 million. The objective is to transfer the cost burden from taxpayers to the users of the system.

I appreciate the points that have been raised. I will go away and reflect on them carefully. Certainly, if there is anything on which I have not responded, I will write to noble Lords.

Baroness Gibson of Market Rasen: The Minister's response has shown how controversial these issues are. It has always been the practice that we have discussed in the Moses Room things that are not controversial. Usually when I am in the Moses Room I am in the chair, so I am able to listen to everything that is going on. Will there be a possibility of these orders being discussed in the Chamber? I do not know who took the decision to have them in the Moses Room. I think that this discussion should have been held in the Chamber.

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