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Grand Committee

Monday, 26 January 2015.

3.30 pm

The Deputy Chairman of Committees (Lord Faulkner of Worcester) (Lab): My Lords, good afternoon. I start with the usual announcement that if there is a Division in the Chamber while we are sitting, the Committee will adjourn as soon as the Division Bells are rung and resume after 10 minutes.

Small Business, Enterprise and Employment Bill

Small Business, Enterprise and Employment Bill Committee (day 3) [Baroness Neville-Rolfe] 11th and 13th Reports from the Delegated Powers Committee13th Report from the Delegated Powers Committee11th Reports from the Delegated Powers Committee

Committee (6th Day)

Relevant documents:11th and 13th Reports from the Delegated Powers Committee

Clause 144: Protected disclosures: reporting requirements

Amendment 62

Moved by Lord Wills

62: Clause 144, page 124, line 5, at end insert—

“( ) In section 43B (disclosures qualifying for protection), after subsection (1) insert—

“(1A) For the purposes of subsection (1), a “qualifying disclosure” includes instances where a worker is thought to have made a disclosure for information.””

Lord Wills (Lab): My Lords, the amendments in this group—I shall speak to them all together—seek to improve protections for whistleblowers. Twenty years ago, the Nolan committee highlighted the importance of,

“encouraging a culture of openness”,

in organisations to tackle and prevent malpractice. Since then, successive Governments have recognised the importance of this. The previous Labour Government brought in the Public Interest Disclosure Act and this Government have said repeatedly that they want to protect and encourage whistleblowing. The Prime Minister, for example, said:

“We will always back whistleblowers when they challenge poor standards, particularly in large organisations”.—[Official Report, Commons, 26/2/14; col. 257.]

However, there are still significant gaps in the current protections for those making disclosures in the public interest. These gaps in protection not only discourage individual cases of whistleblowing and damage individual whistleblowers quite unfairly; they also inhibit the creation of an effective culture in organisations that encourages transparency.

Large organisations that serve the public in both public and private sectors are powerful institutions. They are often driven by a potent internal culture and every case of whistleblowing challenges the powerful vested interests that run such organisations. As I have said in these debates, too often after a scandal is revealed, after the abuses have been tackled and the guilty punished,

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and after all the fine words about whistleblowers have been spoken, it is all too easy for those dominant interests in these organisations to revert to carrying on much as they did before. The powerful never like being challenged.

Repeated failures within the NHS, for example, have highlighted not only how important whistleblowers can be in protecting the public, but how difficult they can find trying to expose incompetence and wrongdoing. These problems are not confined to the NHS. For all the police wrongdoing after the Hillsborough disaster that has now been exposed, for 20 years no one blew the whistle. No one blew the whistle on the scandal of MPs’ expenses, even though the Fees Office in the House of Commons was well aware of the scams that went on. Whistleblowers need effective protection if the public interest is to be secured and there is clearly a need to do more. I hope that the Government will take advantage of a rare legislative opportunity to plug the gaps in protection for whistleblowers, which these amendments aim to do.

I am grateful for the support that I have received from my Cross-Bench colleagues, the noble Lord, Lord Low, and the noble Earl, Lord Lytton, and my noble friends on the Labour Front Bench. I am also grateful to the Minister and her officials for sparing the time to discuss these amendments with me in advance of today’s Committee. I hope that the Government will now respond to these amendments, to which I shall speak relatively briefly.

Amendment 66 simplifies the concepts of allegation and disclosure of information, and tackles the confusion that has arisen from the Employment Appeal Tribunal decision in Cavendish v Geduld, where an artificial distinction was made between a worker making a disclosure of information, which was protected, and the making of an allegation, which is not protected. It is unfair to expect non-legally trained workers to choose the precise wording to ensure that their disclosure is one of information rather than merely an allegation. The Cavendish v Geduld decision provides a convenient way for bad employers to ignore the concerns raised by claiming that the disclosure represents an allegation, as opposed to information. Moreover, the decision undermines one of the Public Interest Disclosure Act’s key policy aims, which is that protection should be most easily obtained for disclosures to the employer.

Amendments 63 and 67 seek to tackle the continuing problems of so-called gagging clauses. Even though the current law renders gagging clauses in any agreement void, there is evidence that further clarity is required. It is difficult to know exactly how extensive this problem is because of the confidential nature of severance agreements, but the experience of Public Concern at Work, the whistleblowing charity, suggests that many still feel gagged, even though these clauses may not be applicable in law. The National Audit Office also recently looked at this issue and concluded that many individuals believed they were gagged as a result of the events leading up to the signing of the agreement, including: the culture of the workplace; the attitude towards whistleblowing; the wording of the agreement itself; and because it was often not made clear to individuals that confidentiality clauses would not prevent

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them making disclosures on concerns of public interest. The National Audit Office looked at 50 agreements from the public sector, 49 of which were found to include a confidentiality clause which, in the end, prevented the individual discussing the terms of the agreement. It judged that none of the agreements would have legally prevented the whistleblower raising a concern, but its report gives several examples of how individuals nevertheless felt gagged.

Amendment 64 seeks to extend the protection for whistleblowers to student healthcare professionals. Students in these professions, with the fresh insights they bring to their work, are often well placed to make disclosures in the public interest. The case for extending whistleblowing protection to them has been extensively rehearsed. I do not intend to repeat it today, as I under- stand that the Government have already made a commitment to extending these protections. However, I would be grateful if the Minister could tell the Committee what progress they are making in doing this.

Amendment 65 seeks to tackle the problem of job applicants who find themselves denied employment opportunities because they have made a disclosure in the public interest. If an individual is labelled as a whistleblower, it can be difficult for them to get work because they can find themselves, in effect, blacklisted, not through a formal, central database but informally. This is a particular problem in small industries and within small communities. Unlike in other areas of discrimination law, job applicants are not considered workers under the Public Interest Disclosure Act, which provides protection where a worker secures a position and is then victimised, forced out or dismissed if the employer becomes aware of an instance of whistleblowing in a previous job. The amendment seeks to plug the loophole, which was identified in BP plc v Elstone, where the Court of Appeal stated that this situation was created because the drafting of the Act had not considered the situation of a job applicant being victimised for raising concerns in a previous job. The amendment addresses this anomaly. It might be helpful to the Committee to remember that an employer who is unaware that an applicant blew the whistle in a previous job would not be in breach of the Public Interest Disclosure Act. This is because, to succeed, the worker would need to prove not only that they had made a protected disclosure in a previous job and the prospective employer knew this—perhaps through a reference check or because the applicant informed the prospective employer of their whistleblowing past at interview—but also that this led to the decision not to recruit them. Without this causal link being demonstrated to the Employment Appeal Tribunal, there would be no case to answer. The amendment seeks to put this beyond argument.

Amendment 62 seeks to extend protection to those victimised for being falsely accused of whistleblowing. The Public Interest Disclosure Act does not protect a worker dismissed or victimised because the employer wrongly believes that they are a whistleblower. The worker cannot, therefore, link a disclosure to the dismissal or victimisation. This is an obvious anomaly and, in addressing it, the amendment follows the precedent of the Equality Act, under which legal protection for

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sexual orientation can still apply, even though an employer wrongly believes that someone is homosexual or heterosexual and discriminates on that assumption. Although the Equality Act is prohibitive legislation and the Public Interest Disclosure Act is not, other changes, such as the recent ones on vicarious liability, have borrowed from discrimination law. The amendment suggests a similar approach in relation to those who are wrongly identified as whistleblowers, without suggesting that being a whistleblower should be seen as a protected characteristic.

Amendment 68 seeks to embed a code of practice into statute, so that it will be taken into account by courts and tribunals. This was a key recommendation of the whistleblowing commission, chaired by the former Appeal Court judge Sir Anthony Hooper, which did invaluable work in this area in 2013. It drafted a 15-point code of practice, which provided practical guidance to employers, workers and their representatives and sets out guidance for raising, handling, training and reviewing whistleblowing in the workplace. A statutory code of conduct would send out to all organisations, in the public and private sectors, a powerful signal about the importance that Parliament attaches to providing adequate support for whistleblowers. This should help to drive the necessary cultural change within organisations to encourage whistleblowing.

Finally, I turn to Amendments 68ZA to 68ZF, which work together to set up a new office of a whistleblowing ombudsman. I am even more grateful than I usually am to the clerks for their invaluable help in drafting these amendments. Despite their length, they are essentially probing amendments, aimed at eliciting the Government’s attitude towards setting up such a whistleblowing ombudsman or some similar organisation. Establishing this was another important suggestion made by the whistleblowing commission. Its work, and the range and scope of the amendments that I have put forward today, suggest that providing adequate protection for those making disclosures in the public interest is a continuously evolving challenge.

Establishing an ombudsman, which need not involve expensive and elaborate bureaucracy, could provide an effective way of responding to this challenge. It could receive concerns and investigate retaliation against whistleblowers. It could also offer a form of alternative dispute resolution in whistleblowing cases. This would mean that whistleblowers would not always have to wait for such rare opportunities for legislation as this Bill to receive the protections that they deserve and the public need them to receive. It may also help to avoid the delays and costs of court and tribunal cases. I do not expect the Minister to make a pledge this afternoon, but I hope that she will at least feel able to commit to exploring positively and constructively the creation of such an organisation. I beg to move.

Lord Low of Dalston (CB): My Lords, I have my name to most of these amendments. I was not able to get my name to those starting with Amendment 68ZA, which relate to the whistleblowing ombudsman, but I support those as well.

I support everything that the noble Lord, Lord Wills, has said about this group of amendments. Amendment 62, as we have heard, aims to give extra protection to

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individuals who are falsely accused of blowing the whistle because the employer erroneously assumes that they were the source of the disclosure, based on a previous incident or a reputation for challenging poor behaviour or malpractice in the past. It is wrong that employers should be able to penalise people when they have simply jumped to unsubstantiated conclusions, perhaps or perhaps not based on something that happened in the past. It would be the purpose of this amendment to avoid that possibility, or at least to give those who have been damaged by employers making such unsubstantiated assumptions a remedy.

Amendments 63 and 67, as we have heard, will help to alleviate some of the misconceptions around the protection afforded to whistleblowers under Section 43J—the anti-gagging provision—which was inserted in the Employment Rights Act by the Public Interest Disclosure Act. As has been said, the legal principles on which Section 43J is based are not the problem; it is that the section could be drafted more clearly. Instead of providing an oblique defence, the new provision in the amendment would act as a shield, preventing information that may point to malpractice, wrongdoing or a health and safety risk being buried in secret settlements. Clearer wording that could be understood by an individual who is not legally trained may well break down this potential barrier for the worker and be of benefit to the employer, as their duties and obligations in this area will be rendered all the clearer.

3.45 pm

I also support Amendment 64, for two reasons. The first is that students are expected under their professional obligations to report concerns over patient safety. Not to do so would jeopardise their future registration, but students are not covered by the scope of the Public Interest Disclosure Act—which I shall refer to as PIDA from now on—although we expect them to act in the public interest. That seems wholly unfair. My second reason is that the law should encourage those with information of a public interest nature to pass it on to those with the authority and responsibility to act. Students are often a fresh pair of eyes going into departments and workplaces, seeing malpractice or poor practice that other members of staff may simply overlook or accept as par for the course. For those reasons, I support the amendment.

I support Amendment 65 because the loophole it seeks to close causes real hardship for those affected by unfairly denying those who blow the whistle future job opportunities. Essentially, there is little legal protection for a whistleblower within the recruitment process. Such a situation only undermines the PIDA’s policy aim of creating an open culture within workplaces. Workers who have moved on to a new job may find that they have been unfairly labelled as a troublemaker. Most employers will see whistleblowers as of benefit to their organisations. That should certainly be encouraged, but there should also be sanctions for those employers who seek to damage those who have come forward in the past.

Amendment 66 is technical, but vital if PIDA’s central policy aim is to be delivered. That aim is to encourage concerns raised to be dealt with by the organisations

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themselves, which is the best way to avoid incidents spiralling out of control and reaching scandal proportions. Having a wholly artificial distinction between making a disclosure of information and merely making an allegation can lead to workers not having the confidence to ask even a simple question of their employer about a dangerous or illegal situation. The current definition would mean that a worker would not be protected if they are victimised for, for example, asking their employer whether the ferry that they are working on is allowed to sail with its bow doors open, or for simply stating that there are insufficient staff on their shift. That is entirely unsatisfactory, and the amendment would help to deal with it. I support it.

Possibly the most important of this group of amendments on whistleblowing is Amendment 67. A code of practice underpinned by law would be of great benefit to workers and employers. The simple 15-point code proposed by the whistleblowing commission will bring clarity to the worker, who will have a guide as to what is expected of their employer’s whistleblowing arrangements, while the employer will be clear on what the arrangements should be. The amendment will reinforce the good work already done by the majority of well run organisations in Britain, while giving courts and tribunals a consistent basis for applying sanctions to those who fall short of a reasonable standard.

Finally, I also support the amendment that would establish a whistleblowing ombudsman, and I look forward to hearing the Government’s response to this innovative proposal. I wholly support the creation of an ombudsman, as there appears to be a gap in accountability between a whistleblower raising a concern and the response they then get from the regulator or the employer to the public interest issue. PIDA focuses only on the victimisation of the whistleblower. That is vital, but it does not deal with how the concern is then addressed. A body such as an ombudsman would complement the Government’s measures to produce regular information from regulators on whistleblowing by holding those bodies to account. With those remarks, I support all the amendments in this group.

Lord Stoneham of Droxford (LD): My Lords, I apologise for being a little late for the beginning of the remarks of the noble Lord, Lord Wills, but I will say a few words in this debate. Generally on this side we are supportive of moves that provide extra protection for whistleblowers. Clearly, people who feel that they have to whistleblow must be protected and must have the remedy for being protected. Listening to the debate, I think that the idea of having some form of national code that would supersede the many codes that have grown up is on the face of it a good thing. I will say only that speed is always of the essence in these cases. If they are allowed to drag on, they become very bureaucratic —the individuals are put to huge inconvenience and stress while their grievances are dealt with. My only concern about setting up another regulator or ombudsman is about whether that would just create a bureaucracy that would add to the burden on those who try to deal with these issues, and would slow up the process in which grievances can in general be dealt with quickly. Obviously I will be very interested to hear what the Government have to say in response. We are broadly

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sympathetic to this tightening up of legislation in this area and the encouragement it should give to genuine whistleblowers.

Lord Young of Norwood Green (Lab): My Lords, we support these amendments. I will preface my remarks by reminding us that in many circumstances this is a matter of life and death. Often the whistleblower finds that his or her life is turned upside down for a considerable period of time and they are put under enormous stress. The lives of the general public can also be affected, as we know from some of the first cases, for example that of the paediatric unit in Bristol. We know that when large organisations get it wrong, they put people and the public at risk, sometimes in extreme circumstances. It is right to remind ourselves of that, and of how much courage it takes for an individual in a large organisation to bring themselves to the point when they feel they have to whistleblow. They might have gone through the procedure of trying to alert their first line manager or even somebody further up the management chain, and still have failed to get any recognition that there was a real problem to be addressed.

We therefore think that the amendments proposed by my noble friend Lord Wills are reasonable; they are justifiable in trying to sort out whether a worker is in fact a whistleblower and is ensured protection. That is extremely important. The amendment enables workers who have been wrongly identified as having made a protected disclosure to be protected under PIDA. Trying to ensure that gagging clauses are finally rooted out is surely another important amendment, and I look forward to hearing the Minister’s response to it. The National Audit Office concluded that many individuals believed that they were gagged regardless of whether or not this was actually the case. Anything that makes that situation clearer and provides adequate protection surely is worth while.

I do not think I need to take much time over the question of whether or not we should include student medical professionals. It seems necessary and I hope that the Government will be sympathetic to it.

Amendment 65 deals with blacklisting. Although we believe that there should be a further inquiry into the general nature of blacklisting, my noble friend Lord Wills has suggested a very reasonable approach to what happens to an individual who, having already lost their job through no fault of their own, finds themselves in a situation where they are unable to gain any further employment, which is surely appalling.

Amendment 63 seeks to ensure that there is not a get-out clause where an employer can suggest that instead of something being a disclosure of information where there is a protected circumstance, that can be got round by considering that it in fact was an allegation, which does not give the employee protection.

I do not need to go into an awful lot more detail because my noble friend Lord Wills and the noble Lord, Lord Low, gave a very detailed analysis. But I will deal with the point about the whistleblowing ombudsman, if only to respond to the noble Lord, Lord Low. One can always make the point about another layer of bureaucracy but when somebody finds themselves in the position of being a whistleblower, we would like to think that these

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situations are dealt with speedily and promptly but all the evidence tells us that unfortunately these cases go on, in many cases for years, and surely at the end of the day what the individual wants is justice. Having somebody who is genuinely independent as the last port of call is a worthwhile suggestion.

For those reasons, we support these amendments and I look forward to hearing the Minister’s response.

Baroness Mobarik (Con): My Lords, as a new Member of the House, it has been fascinating to follow this Bill through Committee. I am sorry I was unable to speak at Second Reading but I just wanted to say that I support the Bill as a whole, and Clause 144 on whistleblowing. However, listening to noble Lords, there seems to be a lot of new material here that could hold up this important Bill. I should like to hear from my noble friend the Minister what else may be planned outside the Bill on this very important issue.

4 pm

The Parliamentary Under-Secretary of State, Department for Business, Innovation and Skills (Baroness Neville-Rolfe) (Con): My Lords, the power in Clause 144 is just one of a number of changes the Government are making to improve the whistleblowing framework. In particular, we are acting in this Bill to ensure that prescribed persons—mainly regulators—report annually on whistleblowing. The purpose of this is to make the existing process, which of course is provided for in the Employment Rights Act 1996, transparent and more effective. I think it is an important provision.

I know that the noble Lord, Lord Wills, is very passionate about this subject. I valued the meeting we had to discuss his very wide-ranging amendments and understand the issues around whistleblowing right across the piece. I reassure him that his desire to improve the way whistleblowing is handled is shared by this Government.

I am grateful to the noble Lord, Lord Low of Dalston, for his comments, including his emphasis on openness, which is, of course, a feature of this clause, and I commend the noble Baroness, Lady Mobarik, on her first intervention in this Committee and for a typically acute question, which I hope I will be able to answer.

This is an important debate. The Government are determined to protect and encourage whistleblowers. Indeed, I take this opportunity to congratulate the whistleblowers at Mid Staffordshire NHS in particular, but others too, on their courage—in the words of the noble Lord, Lord Young. Attitudes must change, as the noble Lord, Lord Wills, has highlighted, quoting the Prime Minister. That is why we are making a number of statutory and non-statutory changes in this Parliament to change the culture and improve and promote the whistleblowing framework. I believe that these changes, mainly outside the Bill, should be given the chance to take effect, and perhaps I can highlight them as I go through and comment on the various amendments.

I will begin, if I may, with Amendment 68. The Government agree that a code of practice and guidance for employers would help to promote the whistleblowing framework. This is why we are currently working with

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key stakeholders to create improved guidance and a non-statutory code of practice. We intend to publish these before the end of this Parliament. I strongly believe that educating employers on the benefits that whistleblowing can bring to an organisation will contribute to a positive cultural change in the way whistleblowing disclosures are handled.

Until now, the Government have expected the legal framework alone to drive behavioural change by encouraging employers to embrace whistleblowing, but clearly, from the evidence that we have, not least the examples that the noble Lord presented, the law alone is not having this effect. This is why the Government are taking steps to provide detailed guidance setting out how the law should be interpreted. We will keep this under review, and if this is not bringing about the change that we expect to see, we will consider introducing a statutory code of practice.

Amendments 64 and 65 look to amend the definition of a worker to include students in the healthcare sector and job applicants. This is a good call, and I can confirm that as a result of the Government’s call for evidence of 2013, we are making a change to bring student nurses and student midwives into the scope of the whistleblowing framework. It is the Government’s intention for this to be in place by 6 April. The statutory instrument has been laid before Parliament, and I believe there is a debate in the other place on 3 February.

The Government wish to extend the definition of “worker” further to include all students within the healthcare profession, although further work must first take place to design a legislative solution that works for the different professions within this sector. The different regulators in the healthcare sector have varying arrangements for registering professionals and training people, all of which needs to be taken into account. The noble Lord, Lord Wills, encouraged us to cover all healthcare students in the scope of PIDA. I can say that the Department of Health is beginning discussions with the relevant professional bodies about this work, and I am happy to undertake to keep him informed of progress, if that would be helpful.

Amendment 65 would extend the definition of “worker” to cover job applicants as a way to prevent whistleblowers being blacklisted and struggling to find new employment. The Government agree that those who have previously blown the whistle should not be disadvantaged when seeking new employment opportunities. That is why we are in the process of identifying the most suitable solution to address this issue, but it is a complex area, and we must ensure that any legislation would not have unintended consequences, such as creating an unfair burden on employers to prove either that they did not know that a person was a previous whistleblower or, if they did, that whistleblowing was not the reason for not hiring them. These kinds of scenarios could make recruitment processes unfair, burdensome or bureaucratic, and we have to see what we can do to get around that.

We must also ensure that employers are not unfairly exposed to the risk of tribunal claims from job applicants: for example, if they had no knowledge that an unsuccessful job applicant had previously blown the whistle, but

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found themselves drawn into an employment tribunal case, having been accused of causing detriment to a whistleblower.

I appreciate noble Lords’ input to suggested drafting of the legislation through this amendment, but there is work to be done to get this right and it will take time, beyond this Parliament, to reach a suitable solution. It would not be right to add this half-cooked work to a Bill designed primarily to help small business and not to introduce new burdens for employers. If this work is to get the support we need, we have to get it right.

Amendments 63 and 67 look to provide clarity to whistleblowers on gagging clauses, which I believe can be achieved without new legislation. The Government have made very clear that gagging clauses are completely unenforceable when there is a public interest concern to disclose. The new comprehensive guidance for whistleblowers, which I have mentioned, will emphasise that settlement or severance agreements do not prevent ex-employees from raising public interest disclosures. This is set out in Section 43J of the Employment Rights Act, so it is a speedy solution.

The noble Lord, Lord Wills, and I discussed the lessons of the useful report published by the NAO in 2013, which was also mentioned by the noble Lord, Lord Young. Although this confirmed, as he acknowledged, that gagging clauses do not prevent workers from raising legitimate public interest concerns, it also showed that the workplace culture, or lack of information, often leaves the worker feeling gagged. I accept that point, so the Government are introducing a number of measures aimed at changing cultural attitudes to whistleblowing. This should help to ensure that workplace environments do not leave workers feeling that they are unable to make a disclosure.

I turn to Amendment 62. The whistleblowing framework is in place to protect those who have blown the whistle: for example, the investment banker who has reported fraudulent practice in his bank or the construction worker who has exposed health and safety laws being ignored. Those who have been dismissed for any reason other than making a public interest disclosure and believe it to be unfair would need to seek redress under unfair dismissal provisions. From the research the Government carried out in 2013, through a call for evidence, this has not come up as an area for concern. Therefore, the Government consider that there is no case for this new legislation at present. However, if noble Lords feel there are issues in this area that need to be addressed, I would be keen to know, and to have examples, so that we can look at them.

Amendment 66 proposes to include “allegations” within the meaning of a disclosure of information. The Government agree with the Employment Appeal Tribunal decision in 2009, in the case of Cavendish Munro Professional Risks Management Ltd v Geduld, that the legislation should protect individuals who make a disclosure conveying information, not those who simply raise an allegation or expression of concern. For example, a worker stating simply that they had concerns that an employer did not follow health and safety laws would be making an allegation. If that same worker explained the reasons and facts—such as

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a door being wedged open, putting people at risk in the event of a fire—this would meet the criteria for it to be a public interest disclosure. This is quite a small change.

Amendments 68ZA to 68ZF would provide for a whistleblowing ombudsman and set out provisions as to how this would operate. I am grateful to the noble Lord for giving the Committee the opportunity to debate this. Its purpose would be to investigate failures in dealing with whistleblowing. However, I fear that if the ombudsman were drawn into investigating all issues reported by whistleblowers, its remit would be unmanageably broad. It would potentially span all issues covered by the many regulators as well as all criminal activity that the police would investigate. The equivalent US office is huge, and given the remit this would be a major undertaking, but as the noble Lord helpfully made clear, this is a probing amendment. I also noted the concerns of the noble Lord, Lord Stoneham, about doing things speedily. This is right and relevant.

In his powerful speech on his amendments, the noble Lord, Lord Wills, set out details of the functions that an ombudsman of this nature would have and provided a good checklist. Annual reporting and best-practice guidance were on that list. As I have already said in response to the noble Baroness, Lady Mobarik, the Government are already putting these measures into effect.

However, the Government recognise that one of the main issues that people have with the whistleblowing legislation is that it is not designed to address the issue reported by the whistleblower; it is designed mainly to address the employment dispute that might arise as a result of someone blowing the whistle. The noble Lord and I discussed this.

I am glad to say that the measure in this Bill will go some way to help ensure that the issue that is reported by the whistleblower is dealt with. Clause 144 introduces a duty on regulators and professional bodies that are listed as prescribed persons to report annually on the whistleblowing disclosures made to them. I believe that this will improve transparency in the way that disclosures are handled. Of course, culture matters, too—in fact, it probably matters more than anything, as Mid Staffordshire showed us—which is why we are well advanced on our national code.

I understand the noble Lord’s concerns and appreciate the work that has gone into preparing for this discussion, which is why I have tried to respond at length. We are making progress. We need to change the culture around whistleblowing, especially in the public sector, which seems to be behind best practice externally.

We are working across government and with external stakeholders to make sure that we get our guidance on whistleblowing right. Those stakeholders include Public Concern at Work, with which I know the noble Lord has worked closely to understand the concerns of those who blow the whistle. I hope that in the circumstances the noble Lord will agree not to press his amendments.

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Lord Wills: My Lords, this has been a short but important debate. I am grateful to every noble Lord who has taken part in it and for the support for the amendments from all sides of the Committee. I am also grateful to the Minister for such a thorough, comprehensive and thoughtful reply.

I am not really surprised that the Government feel that they already have all these issues covered in the Bill and are therefore going to resist the amendments, but I take some comfort from what I thought was a positive approach on the part of the Minister. I noted that she said that if the Government feel that the measures that they are taking for a non-statutory code of practice do not work, they are prepared to look again at a statutory code of practice. We may return to this issue on Report to get a little more clarity on how often the Government are going to review it and what their measure of success or failure will be before they are prepared to consider a statutory code of practice.

I do not want to delay the Committee any more because this has been a helpful and constructive debate. I will read carefully what the Minister has said. I note that she did not completely rule out the idea of a whistleblowing ombudsman; she thought that the way in which the proposed new clauses had been drafted was too broad. I understand her concerns about speed and bureaucracy, but I do not think that they are inherent in the concept. What I may do—I give the Minister and her officials due warning—is look at this again and see whether I can crystallise some of the issues around the ombudsman to get a little more detail on how the Government may want to proceed. I thank all noble Lords again and beg leave to withdraw the amendment.

Amendment 62 withdrawn.

Amendments 63 to 67 not moved.

Clause 144 agreed.

Amendments 68 to 68ZF not moved.

4.15 pm

Clause 145: Financial penalty for failure to pay sums ordered by employment tribunal etc

Amendment 68ZG

Moved by Lord Young of Norwood Green

68ZG: Clause 145, page 125, line 43, leave out from beginning to end of line 4 on page 126

Lord Young of Norwood Green: My Lords, I shall speak to all the amendments in this group. It is as well to remind ourselves what an employee has to go through even to get to an employment tribunal.

The Enterprise and Regulatory Reform Act created a number of hurdles that people have to pass. First, they must go to early conciliation at ACAS. If that breaks down, they are issued with a certificate to say that conciliation has been unsuccessful and they must go into the employment tribunal system. An entry fee

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has to be paid to the employment tribunal service. If they want to take it to a full hearing, there is an additional fee. We do not believe that it is just or fair for a pregnant woman who has been discriminated against at work, for example, to have to pay £1,250 to enter the employment tribunal system.

After going through an incredibly stressful time, including an often expensive employment tribunal, someone might be given a compensatory award that says that they have been wronged at work. The employer must remedy that problem but might decide not to pay. There are a number of hurdles that someone has to get past to be paid, which is why we must try to find a way of remedying the problem, particularly in cases where an employment tribunal sitting in front of a judge has declared that the employee deserves to be compensated and the wrong must be righted.

Amendment 68ZH says:

“Any payments made under this section by the employer must be paid to the employee to the extent that the relevant sum has been fully paid before any sums are payable under the penalty notice”.

Ironically, fines might well be paid to the Government as a result of an employer failing to comply but the compensatory reward could remain outstanding. The Exchequer might benefit but the individual has been denied justice in that the compensatory award has been ignored by the employer. That is why we are recommending that in these circumstances that sum should be dealt with first. Again, I look forward to hearing the Minister’s response to this.

Then there is the question of naming and shaming. We already have a number of circumstances in other legislation where employers are named and shamed. With regard to the national minimum wage, the circumstances in which employers are actually prosecuted or even named and shamed are very few and far between. That is why we believe that this clause ought to include,

“a provision for the publication of the name and other particulars of an employer who does not pay the relevant sum as per the conditions of the notice”.

I beg to move and look forward to hearing the Minister’s response.

Lord Stoneham of Droxford: My Lords, I support the principle of these amendments. I look forward to hearing the Minister’s detailed response. It is right that the Government have introduced a number of reforms on employment tribunals, but in doing so they have introduced fees. I understand that the Government are in the process of starting an inquiry into the impact of those fees. We know that the number of people going to employment tribunals has fallen dramatically, so we need to know the reasons for that.

The principle of fees seems to be right in terms of deterring people from making frivolous claims, but we need to ensure that the integrity of the employment tribunal service is open to people with genuine claims, even if they have low means. Therefore, if we are tightening up on the fees, we should be looking closely at the payment of compensation so that the individuals who are awarded compensation get the money as quickly as possible, and preferably ahead of the fines that subsequently could be due on the employer for not having paid that money earlier.

26 Jan 2015 : Column GC14

Baroness Neville-Rolfe: My Lords, I thank noble Lords for their amendments. I believe we share the same aim—that of ensuring the best outcomes for individuals who have been through an employment tribunal, and ensuring that they receive their awards. Our research indicates that, without enforcement, only 40% of awards are paid within six months. That is clearly scandalous. Our financial penalty clause is intended to incentivise prompt payment of employment tribunal awards and to prevent employers ignoring judgments by employment tribunals. It applies to all tribunals, awards and settlements conciliated by ACAS. Employers who have not paid the award will receive a warning notice from the enforcement officer. By paying the award in full, promptly, they will avoid a penalty. However, if they do not pay in full, they will be hit with a penalty of 50% of the award. If they continue not to pay, or to pay only part of the award, they can receive further penalties, each of 50% of the unpaid amount, as well as incurring interest on the outstanding award. We consider that encouraging prompt payment in this way is an effective way of dealing with a problem that we agree exists.

Before I return to the amendment, I will respond to the point made by the noble Lord, Lord Young, about employment tribunal fees. It is reasonable to move away from funding being provided largely by the taxpayer towards a more balanced process, whereby the £74 million cost of administering claims to the employment tribunal system are met in part by those who use the system and benefit from it. However, it is important to emphasise that the Government have been very careful to ensure that fee waivers are available for those people of limited means in order that they are not excluded from seeking redress through tribunals. As the noble Lord, Lord Stoneham, has already mentioned, helpfully, the Government—

Lord Young of Norwood Green: I hear what the Minister says, but surely there ought to be some concern—as I think the noble Lord, Lord Stoneham, mentioned—about a situation where, in some regions of England, the number of employment tribunals has dropped by 80%? Surely that is not an indication that 80% of claims were vexatious. Does she really not have any concern in this situation that fees are deterring people from bringing what could be completely fair and justifiable cases before an employment tribunal? The evidence we hear from trade unions, which are normally the buffer between the employee and employer, is that that is exactly what is happening.

Baroness Neville-Rolfe: My Lords, I am glad that the noble Lord intervened to register his concerns, which to some extent I share. That is why the Government have committed to reviewing the introduction of fees. We are considering the scope and timing of the review, and will bring forward our plans in due course. We need to understand what is going on here, of course, but I was trying to make a general point about trying to improve things. The provisions in the Bill are another example of our efforts to do just that—to ensure that there are fair results and that people who are given awards receive them in due time.

I turn to each of the amendments, acknowledging the spirit of them, but obviously, as is usually my wont, looking to make sure that we do not have any

26 Jan 2015 : Column GC15

perverse effects. I will start with Amendment 68ZG, which is designed to include costs in the calculation of the money that is considered to be owed for the purposes of the penalty. It is worth noting that “costs” or, sometimes, “preparation time” awards—where people are not paying for attorneys—are made in only a tiny proportion of cases. Costs awards are not related to the compensation for the breach of employment rights—for example, in a case of discrimination—but to the way in which one of the parties has behaved during the tribunal process. A good example would be the deliberate, repeated late disclosure of documents. Indeed, last year only 242 costs orders were made to claimants—in the context of more than 42,000 claims. The Government do not believe that adding costs to the calculation will add a significant additional incentive to pay. But I am sympathetic to the noble Lord’s intention and will consider further whether we need to make a change ahead of Report.

Turning to Amendment 68ZH, we are clear that a penalty regime must incentivise prompt payment in full and not inadvertently reduce the likelihood of individuals gaining their full award. Allowing the penalty to be used to offset the award, as proposed in the amendment, would not, we fear, incentivise prompt payment of the award in full, which is our objective. The point of the penalty is to act as a deterrent and a sanction for non-payment. Conflating money owed to the claimant with a civil penalty would cause confusion and might raise questions about which liability had been met when money was paid. We believe it would be better to keep the civil penalty separate from the money owed to the individual. The clause already encourages an employer to make full and prompt payment to avoid a penalty altogether. As I have explained, the only way in which an employer can avoid a penalty is to pay up in full once they receive a warning notice. This seems to be the most effective approach.

Amendment 68ZJ seeks to introduce a naming scheme. As the noble Lord will be aware, there is already a scheme for the national minimum wage. We are considering naming as part of the Government’s overall approach to increasing the full and prompt payment of tribunal awards. We need to carefully consider the options to ensure that we find the most effective response. I would be happy to update noble Lords on our thinking ahead of Report.

Turning to Amendments 68ZK to 68ZM, I reassure the noble Lord that unpaid awards are already recoverable through the county court, or the sheriff court in Scotland, as they are treated as judgment debts. There is also a fast-track scheme in England and Wales where a court enforcement officer can pursue the money on the claimant’s behalf. Furthermore, interest accrues on those unpaid tribunal awards at 8% per annum. So there is an incentive to pay promptly and in full.

Finally, in response to Amendment 68ZMA, I hope I can provide further reassurance. As I have outlined, there are already a range of mechanisms by which an individual is able to enforce their tribunal award. In addition, under Clause 145, a government-appointed agent will impose penalties for non-payment. The penalty scheme we are introducing through this clause offers an alternative, cost-free way to ensure that the

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claimant gets the money they are owed. Therefore, the Government do not consider that there is a need to set up a further mechanism at this stage, but we shall continue to monitor the situation following implementation of the new penalty provision.

I hope that my explanations, including about our wider plans, have provided reassurance to the noble Lord and that he will be content to withdraw the amendment.

Lord Low of Dalston: Before the noble Lord, Lord Young, replies, I wonder if I might be permitted to say a word or two about Amendment 62ZMA. I am afraid I was not quick enough on the draw before the Minister rose to reply. I thought that more noble Lords would intervene on some of the earlier amendments so I missed my cue.

Since I am speaking slightly out of turn, I will not make all the points that I might have made in support of the amendment. I am very grateful to have heard what the Minister had to say but there is a considerable amount of concern about the effectiveness of regimes for enforcing the payment of awards. A number of suggestions have been made for addressing this problem. I wonder if the Minister might be prepared to meet me before Report to talk through some of the options and to see if we cannot slightly firm up the provisions that are already there and find a formula or mechanism which might be slightly more likely to deliver results than what is in place at the moment and, indeed, what is proposed by the Minister.

4.30 pm

Baroness Neville-Rolfe: My Lords, I am grateful to the noble Lord, Lord Low, for his comments. I would of course be delighted to host a meeting and go through these important issues—what we are doing, what we are not doing and how to find the best way forward in this important area so that the penalties work and the awards are paid.

Lord Young of Norwood Green: My Lords, I thank the Minister for her comprehensive reply. Are we satisfied? No, I do not think we are entirely, although I welcome the suggestion from the noble Lord, Lord Low, of a meeting; that is a useful and practical possible way forward. The research carried out in 2009 by the Ministry of Justice, which administers the system, showed that 49% of those employment tribunal awards—almost half—went unpaid in the first instance before any enforcement action was taken through the county court system. If it were 4% or 9%, we might say, “Okay, it’s not doing too badly”. Each case represents an individual who has fought their way through all those hurdles, got through to the employment tribunal and won an award but, no matter what the penalties are, they do not yet seem to be convincing the majority of employers. It is even worse in Scotland.

We still have real cause for concern. I have raised the fact that we have seen a dramatic decrease in people being prepared to go to a tribunal, and this seems to be adding insult to injury when they actually do go there. Nearly half the employers are able to say, “We can ignore it. We’re not bothered. We’ll see if we can weary the individual to the point where they won’t

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continue”. I am sure that some will not go through the county court because by that time they will have had enough. That is our concern.

Baroness Neville-Rolfe: My Lords, I reiterate that I also feel that the current situation is scandalous—I think that is the word I used—and the question is how we can best find measures that will solve the problem and bring the rate of payment in such areas much closer to what one might expect in other areas of the law. I hope that our meeting might assist with that.

Lord Young of Norwood Green: I think that I have made the necessary points, and I beg leave to withdraw the amendment.

Amendment 68ZG withdrawn.

Amendments 68ZH to 68ZMA not moved.

Clause 145 agreed.

Clause 146 agreed.

Clause 147: Amount of financial penalty for underpayment of national minimum wage

Amendment 68ZN

Moved by Lord Young of Norwood Green

68ZN: Clause 147, page 136, line 39, leave out “£20,000” and insert “£50,000”

Lord Young of Norwood Green: In this situation we have another worrying set of circumstances with regard to underpayment of the national minimum wage, a situation that we have protested about on numerous occasions. There have been only a pitiful number of prosecutions of people who have failed to pay the minimum wage, and even the naming and shaming has not exactly resulted in a large number of employers being brought to the attention of the public and their credibility, image and brand being exposed for failing to meet their obligations under the national minimum wage. That is why we have suggested that the penalty should be increased from £20,000 to £50,000.

As we say in Amendment 68ZQ, we believe that the Secretary of State should provide,

“an annual report to Parliament on the effectiveness of … enforcement of the national minimum wage”.

Does the current enforcement regime have the necessary resource to police the situation and go on to enforce it? As we then say:

“the level of the financial penalty for underpayment, including but not limited to its impact on compliance”;

should also be reported on, as should,

“changes in provisions relating to the national minimum wage improving other measures of pay in the labour market”,

as proposed subsection (c) says. In addition, having looked at how enforcement currently takes place, which is via HMRC, we believe that it would be more effective if it was enforced by local authorities. There are a number of examples where local authorities currently enforce at the local level, whether on environmental issues or food safety. It seems to us that they would be much more effective than HMRC is. I look forward to hearing the ministerial response to these amendments.

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Lord Stoneham of Droxford: I thought that the Government were doing much more than the noble Lord, Lord Young, indicated to enforce the minimum wage. That has been led by the Secretary of State and the naming and shaming is an important element of it—there has been considerable publicity. The Minister should perhaps spell out a little exactly what the Government have been doing in this area and the Opposition should not take all the credit. They deserve the credit for introducing this measure, but the Government are committed to seeing it enforced, and seeing that people are paid appropriately.

Finally, it should be said that this is a Bill for small businesses and, as we saw in the previous discussion, there is a danger as to affordability when it comes to the paying of fines, particularly by small employers. Those should be appropriate, so I will be interested to hear what the Minister will say about enforcement. I hope she will confirm the Government’s commitment to making sure that the minimum wage is firmly enforced.

Lord Watson of Invergowrie (Lab): My Lords, I was certainly in accord with the noble Lord, Lord Stoneham, on his last remarks, but I find it rather strange that he should pray in aid of his argument that any fines should be affordable by the small businesses concerned. Small businesses have no need to incur any penalties whatever; all they have to do is abide by the law and they will not be forced to pay a penny more than they are legally obliged to do. There is no merit to that argument. If you do not want the fine, pay the national minimum wage.

While I suspect that the Government will resist the move from £20,000 to £50,000, my point in respect of the amendment has two prongs to it. One is that I want to know why there should be an upper limit at all at £20,000. Why is there a need for an upper limit? In earlier parts of this clause, it says that the total amounts should be in respect of the amount owed to the individual. But if there is an upper limit of £20,000—and goodness knows what kind of employer would incur a debt of failure to pay the national minimum wage in excess of £20,000—why should we use that as a cap? What is the logic, first, for having a cap at all and, secondly, for that to be the figure? If £20,000 is not to be a sufficient disincentive, £50,000 might just about do the job, and for that reason this amendment ought to be accepted by the Government.

Lord Whitty (Lab): My Lords, I, too, support this amendment and I take issue with the noble Lord, Lord Stoneham. The worst thing for a small business that is obeying the law is that there is another business down the road that is not. There has been quite some fragmentation at the bottom end of the labour market since 1998 and we know that the way people are employed—or quasi-employed—is now much more dubious in terms of what they are entitled to and how you can check on it. Where people are not being paid the minimum wage for the hours that they work, it is important that the authorities can both check on it and enforce it. I fear that, at the moment, there are not many resources for doing either. Strictly speaking, the wages inspectorate is part of this as well as HMRC, but this is not top of its priorities and the number of

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prosecutions in this area has been very limited. I am not denying that there have been noises from BIS and from the noble Baroness’s fellow Ministers on this front, and I welcome that. However, the reality is that are a lot of people who are either on zero-hours contracts, which we will debate in moment, or on various other quasi- terms which they cannot argue with the employer and whose money is below the rate they should be getting.

The Agricultural Wages Board used to have a particular inspectorate—it was not even five people at last knockings —but when the board was abolished last year we received assurances that that resource would be transferred into HMRC. I understand that no such increase has actually occurred, either in the wages inspectorate or HMRC. Regarding HMRC, I would be reluctant to agree with Amendment 68ZR that enforcement should go entirely to local authorities. HMRC often has a way in because it sees the books, so I would keep a role for it. That could be followed through in rather the same way as local authorities follow through environmental health legislation by being given more of a role in that respect. Local authorities would also need the resources to be effective in this area.

We need to recognise that the present situation is not adequate. The enforcement resources that would be subject to the annual report are not adequate either. Having a maximum penalty of £20,000 is also not a deterrent for a lot of employers who operate on the murkier side of the labour market. It is not always small companies that are doing this; it is often large companies, or their sub-contractors, or labour-only suppliers who are paying below this rate. We therefore need a step change. Amendment 68ZN would go a considerable way to providing a degree of deterrence. Amendment 68ZQ would mean that Parliament would at least know what the level of resources in this area ought to be and actually is. On Amendment 68ZR, I would hope that local authorities would have some role, but HMRC and its resources are also an important element.

Lord Storey (LD): My Lords, when the Minister replies, perhaps she could clarify whether it is £20,000 per person or £20,000 for the company. I do not think there is any difference between us. The noble Lord, Lord Stoneham, is right to say that the most effective way of ensuring compliance is by actually prosecuting. So far, the number of prosecutions is very small and is not even steadily rising. Now that HMRC has the information on tax avoidance, we have the power and the tools to make sure that businesses comply. I hope that the Minister will say something in her reply about how we ensure that we use the full force of HMRC and that action is taken against the very few businesses that do not comply.

4.45 pm

Baroness Donaghy (Lab): My Lords, perhaps I may say a couple of words in support of these amendments. I was a member of the first Low Pay Commission when it was formally established in 1998. We obviously spent some time on the issue of enforcement. The difficulty was that the people who were in industries that did not pay a statutory minimum wage were very often reluctant to complain in the first place. Certainly, in some of the textile industries that we visited, it

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became fairly clear that if anyone put their head above the parapet, not only would they eventually lose their job in their own workplace but they would not find a job again in any textile industry within travelling distance. I am sure that that is not unique to textiles, so it will always be a major problem to enforce this and to get people to make a formal complaint and take that kind of risk with their future.

The Low Pay Commission is also keen for there to be a very good system of accessible information for people who want to know what their rights are. The original information issued by the Low Pay Commission was very good. Unfortunately, this Government changed it so that it was no longer fit for purpose. That was a statement made by the Low Pay Commission—that the website was no longer fit for purpose—so it is hardly surprising that the number of complainants is not only not rising but is probably falling in relation to the increased number of people in the labour market as a whole.

As my noble friends Lord Watson and Lord Whitty have said, the casualisation—or further casualisation—of the workforce makes this extremely difficult to enforce. My view is that the more headline news you get about successful prosecutions and fines, the more likely people are to put their head above the parapet. It always amazed me when people used to say about the previous employment tribunal system, “Oh, the penalties that you can get are £50,000 a year”, which was ridiculous; the level at the time when I was chair of ACAS was £5,500. That was the average settlement, not the headline figures that newspapers would imply. The reality of the minimum wage and its enforcement is so far removed from the kind of discussion that we are having today that it is almost difficult to know where to start. I urge the Minister to think about accessible information, and perhaps to consult the Low Pay Commission to ensure that it is adequate for both applicant and respondent.

Lord Popat (Con): My Lords, I thank the noble Lord, Lord Young, for his amendments to Clause 147, and for giving us the opportunity to debate the important subject of the national minimum wage. I have heard a number of concerns raised by the Opposition about the underpayment of the national minimum wage. I hope that my notes will cover what the Government are doing about that.

Clause 147 is an important step towards ensuring that employers comply with the national minimum wage legislation. It will amend the National Minimum Wage Act 1998 so that the maximum penalty that can be imposed through a notice of underpayment will be calculated on a per-worker basis rather than per employer. This will substantially increase the penalty for employers who owe large arrears to a number of workers. My noble friend Lord Storey asked this question, so I am pleased to confirm that the penalty of £20,000 is per worker.

By applying the penalty to each worker, employers owing high arrears to a number of workers may be issued with a greater penalty overall, as well as a higher maximum penalty. The higher penalty will deter employers from breaking national minimum wage law in the first place, ensuring that workers receive what they are entitled to and to come down harder on those employers who continue to break the law.

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I will now respond to each amendment. Amendments 68ZN and 68ZP are designed to increase the maximum civil penalty available for non-payment of the national minimum wage from £20,000 to £50,000 per worker. I heard what the noble Lords, Lord Whitty and Lord Watson, had to say on this subject, and we welcome the recognition from the Opposition that there is a need to increase these penalties but we do not see the evidence to set the upper limit at £50,000. As the impact assessment for the measure sets out, 6% of cases in 2013-14 involved total arrears in excess of £20,000. None of these cases was anywhere near the upper limit suggested in the amendment.

Under the Bill, the penalty will be applied on a per worker basis, as I said. When you look at the cases where HMRC issued a notice of underpayment in 2013-14, the change means that in almost every case, the employer would have been issued with a penalty equivalent to the total amount of arrears they owed, rather than having the overall penalty capped at £20,000. As a result, the amendment would have had very little impact on the level of penalties in those cases.

However, I reassure noble Lords that if, in future, there is evidence to suggest that a higher maximum is needed, we can make that change through secondary legislation. I hope that I am giving reassurance to the party opposite that if we think in future that £20,000 is not enough and we need to raise it, we can bring in secondary legislation to increase the penalty.

Lord Young of Norwood Green: How many cases were in court for underpayment of the national minimum wage last year?

Lord Popat: I will certainly come back to the noble Lord on that in a minute.

I turn to Amendment 68ZQ. It is designed to impose reporting requirements on the Government’s approach to national minimum wage compliance and enforcement, as well as the impact of the minimum wage on wages more broadly.

I welcome the Opposition’s continued interest in this area and their desire to ensure that the system is working as well as it can. However, we believe that we are already transparent in our approach to reporting on the effectiveness of the national minimum wage and its impact on workers’ wages. Every autumn, the Government submit evidence to the independent Low Pay Commission, including an assessment of the national minimum wage’s impact on the labour market. That evidence is considered by the Low Pay Commission before it makes its recommendations to the Government. If new minimum wage rates are to be set, Parliament has an opportunity to debate them before they are introduced in October. Therefore, I hope that noble Lords will agree that the amendment is not necessary, as it simply imposes obligations that will duplicate reporting that is already taking place.

Finally, I turn to Amendment 68ZR, which would give local authorities power to enforce the national minimum wage. The Government already have an enforcement body dedicated to the national minimum wage, with a strong track record in this area.

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I will respond to the question of the noble Lord, Lord Young. Since it started that work in 1999, HMRC has identified more than £54 million in arrears for more than 229,000 workers during more than 65,000 employer interventions. We are doing a lot more. The Bill, as my noble friend Lord Stoneham said, is to give small businesses help and support. We have gone as far as we can to make sure that employers do not break national minimum wage legislation. The noble Lord, Lord Young, asked how many cases of arrears there were last year. In 2013-14, there were 680 cases, with total arrears of £4.6 million.

Lord Young of Norwood Green: My Lords, I heard what the Minister said in response. I do not think that we are not totally satisfied with it. I may have missed in the exchange over the figures the Minister’s response to our view about enforcement by local authorities. Can he confirm what attitude is taken towards that?

Lord Popat: Towards what?

Lord Young of Norwood Green: Towards regulations devolving the enforcement of the national minimum wage to local authorities, as proposed in Amendment 68ZR.

Lord Popat: My Lords, we have a very strong HMRC enforcement regime. We do not see any point in giving the power to local authorities. However, HMRC has regional offices to enforce the legislation. Of course, many other government departments play an important role in enforcing it.

Lord Morris of Handsworth (Lab): Is the Minister aware that a lot of people on the minimum wage do not have the information and that some people do not have the ability to work out what their entitlements are? What steps can be taken therefore, in a form which informs the employee, to the point where they are getting what they are entitled to and do not have to seek any external assistance, whether through an inspectorate or otherwise? It is a duty and a responsibility that the spirit of the national minimum wage when it was introduced should be upheld. It was introduced to be helpful rather than to be put in a legal straitjacket whereby people are not getting the underlying justice that was its intention.

Lord Popat: The noble Lord, Lord Morris, raises the important issue of how we help to ensure that people are paid the minimum wage and what guidance we give them on working out by how much they are being short-changed. Since 2013, we have published detailed new guidance on calculating the national minimum wage, which is available on the GOV.UK website. We have also updated several GOV.UK pages which hold information about the national minimum wage. This includes new information about current and future national minimum wage rates, a worker’s checklist, guidance on work experience and internships, information on the increased penalty for breaching the national minimum wage and the revised criteria for naming and shaming employers who breach national minimum wage legislation. Therefore, quite detailed information is available for workers to help them work

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out by how much they might have been short-changed in cases of people being paid less than the national minimum wage.

Lord Young of Norwood Green: A propos the Minister’s final point, is there not also the employment rights helpline, which we introduced? Does the Minister have information on the level of complaints or reporting of failure to pay the minimum wage on the employment rights helpline?

Lord Popat: I am afraid that I will have to write to the noble Lord with that information. I do not know whether it is available on our websites.

I have just been given some information on how many calls have been received on that subject. From the beginning of 2014 to October 2014, the number of inquiries that we received was 10,086. The number of complaints that we received relating to the national minimum wage was 1,550. I will certainly write to the noble Lord with more information on this subject, which we appreciate is quite important.

Lord Young of Norwood Green: I thank the Minister for his response. We will take into account the points that he has made and reflect on whether we need to come back to any or all of these issues on Report. I beg leave to withdraw the amendment.

Amendment 68ZN withdrawn.

Amendments 68ZP to 68ZR not moved.

Clause 147 agreed.

5 pm

Amendment 68ZS

Moved by Lord Young of Norwood Green

68ZS: After Clause 147, insert the following new Clause—

“National minimum wage

(1) Section 17 of the National Minimum Wage Act 1998 (non-compliance: worker entitled to additional remuneration) is amended as follows.

(2) In subsection (2), at the end of paragraph (b) insert “including any relevant remuneration the worker would have received in respect of holiday pay or other leave pay”.”

Lord Young of Norwood Green: My Lords, we suggest that this new clause be inserted into the Bill. In the case of non-compliance, we believe it is justified that,

“any relevant remuneration the worker would have received in respect of holiday pay or other leave pay”,

ought to be included as part of the national minimum wage assessment. I beg to move.

Baroness Neville-Rolfe: I thank the noble Lord for his amendment and, indeed, for his succinct introduction, which I do not think I can quite match in responding to the amendment, which introduces a new clause to include holiday and other leave pay within the calculation of the minimum wage.

The Government do not consider that the amendment is necessary. That is because under the Working Time Regulations, a worker is entitled to a week’s pay for each week of leave, and there are already routes of redress if these payments are not made. A worker who believes that they have been underpaid can make a claim to an

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employment tribunal. This claim has to be submitted via ACAS, which will first offer early conciliation. Where holiday pay has not been paid, workers have a choice as to how they may claim the money they are owed. They can bring an action against their employer under Regulation 30 of the Working Time Regulations or they can bring an action for unlawful deduction of wages under Section 23 of the Employment Rights Act.

Both claims are brought in the employment tribunal. Where the worker is entitled to other leave pay which forms part of his or her wages, he or she will be able to claim any underpayments through an action for unlawful deduction under the Employment Rights Act. In addition, the early conciliation system allows for disputes over pay to be resolved before recourse is made to the tribunal, so without litigation. If a worker believes that he or she has not received the correct holiday pay, he or she can contact ACAS, which I am sure will be very helpful and will offer early conciliation. If that is not successful, a worker can take a claim to an employment tribunal. ACAS offers helpful guidance on holiday pay on its website.

The Government firmly believe that the holiday pay arrangements currently in place are sufficient and there is no evidence to suggest that enforcement in relation to holiday pay should be extended to the National Minimum Wage Act. I did, however, pick up the point from the earlier discussion that perhaps people do not always know what the routes for information and redress are. In writing to noble Lords, as I promised to do on the earlier amendment, I would be happy also to set out the arrangements on holiday pay so that people have a full understanding.

I hope that the noble Lord has found my explanation of the avenues that exist reassuring and will therefore agree to withdraw his amendment.

Lord Young of Norwood Green: I have listened carefully to the Minister’s response. We think there is a connection in that employers who fail to pay the minimum wage are often also in this situation, where they do not respect full holiday pay and leave entitlements. We will take into account the response and consider whether to come back to this on Report. In those circumstances, I beg leave to withdraw the amendment.

Amendment 68ZS withdrawn.

Amendment 68ZT

Moved by Baroness Donaghy

68ZT: After Clause 147, insert the following new Clause—


(1) The Secretary of State must publish a report on the use of internships within the UK labour market.

(2) The report shall include details on, but is not limited to—

(a) the definition of an internship with reference to other forms of voluntary work and work experience;

(b) the growth of internships in the labour market over the past five years;

(c) the incidence of internships by industrial classification;

(d) the range of contractual arrangements that apply to internships;

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(e) the average and median length of internships;

(f) the proportion of internships that are paid;

(g) the range, average and median pay for paid internships;

(h) the expenses and allowances made available to internships;

(i) the impact of internships on social mobility;

(j) the subsequent career choices made by interns;

(k) the relative progress in employment of those who have undertaken internships.

(3) This report shall be published within one year of the commencement of this Part and must be laid before both Houses of Parliament.”

Baroness Donaghy: My Lords, Amendment 68ZT asks the Government to publish a report on the whole issue of internships. Clearly, it is a probing amendment, and I make it clear that I am not against internships. Paid internships are not only fair but can be argued to be good for business, as they allow all to compete on an equal footing for valuable experience. Across all sectors, those firms offering paid experience get more applications from a broader range of candidates. By offering the minimum wage, or even the London living wage, firms are able to secure the most able workers.

However, where internships are informal and unpaid, they are likely to be unstructured and unhelpful for the intern and for the company. The proliferation of unpaid internships is now a barrier to social mobility and is blocking routes into higher-paid jobs for young people from low-income backgrounds. Although information on internships varies, the Chartered Institute of Personnel and Development, of which I am a member, estimates that 21% of businesses offering internships do not pay their interns. According to the Sutton Trust, it is estimated that across the UK 22,000 interns are working unpaid at any one time. Data from the trust show that 31% of recent graduate interns are working for no pay. In the 2012 report on fair access to professions, the Social Mobility and Child Poverty Commission noted that unpaid internships are concentrated particularly in the creative industries, the media, and financial and professional services.

The Sutton Trust report continues by stating that an unpaid internship can cost an individual £926 a month in London, or £804 a year in Manchester, on a six-month work placement. The cost of working for nothing rules out all but those from better-off families and discriminates against the majority of young people, who cannot afford to work for free. The trust goes on to say:

“All internships longer than one month should be paid at least the National Minimum of £6.50 per hour, and preferably the National Living Wage of £7.85 (or London Living Wage—£9.15—in London)”.

I am not making any particular proposals on this issue; I am simply indicating what other organisations support. If I am asking for an inquiry, it would be rather inconsistent for me to state what policies I particularly supported. The trust wants internships to be advertised publicly rather than being filled informally, and recruitment processes to be fair, transparent and based on merit. That reflects a statement issued by BIS regarding internships, so I do not think it contradicts anything that is already BIS policy.

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An Ipsos MORI poll of 1,700 adults in England for the charity suggested that 70% felt that unpaid internships were unfair as only the wealthy could afford to take them, and some 55% agreed that internships of up to six months should pay at least the minimum wage, with 73% supporting it for placements of more than a year. The YouGov polling shows that 65% of businesses support the proposal to end unpaid internships, presumably because it gives an unfair advantage in certain cases if you do not level the playing field. Bodies such as the Institute of Directors, UK Music, the Royal Institute of British Architects and a range of bodies representing the PR and creative industries also support getting rid of unpaid internships. Alan Milburn, chair of the Social Mobility and Child Poverty Commission, has called on policymakers to adopt a four-week limit on unpaid internships. As I have said, BIS supports an open, fair and transparent process of appointment to internships and indicates:

“Anyone who is a worker is entitled to be paid at least the minimum wage, this includes interns who fall into the worker category”.

Thereby hangs the problem. The lack of clarity about what constitutes an internship is frustrating the application of the National Minimum Wage Act.

In conclusion, internships are becoming essential for access to many professions. Because a high number are unpaid and unaffordable to those from ordinary backgrounds, too many young people are being excluded from the opportunities that they deserve. Although I accept that there will always be a need for casual labour in a flexible labour market, the current position is unfair and disproportionate. A civilised society should be prepared to look at the obvious nooks and crannies in its system, not least if it might go some way to solving our poor productivity record. I cannot help but think that the increasing casualisation of our labour force and our poor productivity record have something in common. I beg to move.

Lord Watson of Invergowrie: My Lords, I came along this afternoon intending to support my noble friend Lady Donaghy on this amendment and I shall attempt to do so, but I regret that so comprehensive has been her advocacy of it that it has left me with little to say. Perhaps I might stress two or three of the points that she made.

One of the aspects that worry me is undoubtedly the fact that unpaid internships are, by their very definition, exclusive to people who, by whatever means, are able to have their costs of living covered while they undertake them. That necessarily makes them exclusive and is unfair. Some people would say that life is unfair; yes, of course it is, but in terms of employment we can try to make the playing field as level as possible. I see no reason why anybody undertaking an internship of more than one month should not be paid. Up to one month, it may be genuine work experience; beyond that, it is a bit more. While the person may find personal benefit, the employer gets a benefit as well. That very important point should be looked at.

There is also a rather disturbing trend now of companies emerging that will charge people a fee for placing them in an internship. That is worrying and, while some of them are paid, you may have to pay

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even to get on to an unpaid internship. I do not believe that that is right. There are also situations where auctions for internships are held. They sometimes involve charities and, on the face of it, that is worth while but, again, it suggests that it is not an appropriate way to bring anybody into the workforce, paid or unpaid. I regret that development.

Most of all, it is important that anybody doing a job should be paid the rate for that job. Some Members of this House and some Members of the House just down the Corridor need to look at their own practices in this respect, because it has been revealed that there are more than a few unpaid internships within the Palace of Westminster. That does not set any kind of positive example for keeping anybody on beyond a month. With those brief remarks, I am pleased to support the amendment in the name of my colleague and noble friend Lady Donaghy.

5.15 pm

Lord Storey: I very much thank the noble Baroness for tabling this important amendment. In doing so, she brings with her a wealth of experience in this area. We know of Members in both the House of Lords and the other place who employ interns—I was conscious of that when I first came to Parliament—but you can do that only if your parents can look after you financially. If you are living on a council estate in Sheffield, Liverpool or Glasgow—let us keep the full nations in and also say Swansea—your chance of doing an internship in Westminster would be non-existent. We also know that if you do an internship in Westminster, it is an opportunity for real career advancement.

My view is that all internships should be open and accessible, and freely advertised. They should be paid after an agreed period, at minimum wage, and be for a set period so that we level the playing field and it will not be just the rich and wealthy who can afford to provide those opportunities for their children. Everybody could have that opportunity as well. But there are real difficulties in this area; it is not quite as simple as we think. I thought, “Great. Interns should be paid”, et cetera, but then we have to think carefully through the issues. That is why this probing amendment is so important.

What is the position of work experience? As a former employer, I remember that local schools would send pupils for two weeks’ work experience. What about volunteering and genuine volunteers? A close friend of mine volunteers every Saturday to work in the local Oxfam charity shop. How does that work out? Some young people generally want to volunteer—with no ambition to follow a career in that area but because they have a social conscience. The other issue is: how does that fit in with sandwich courses at universities, where people will go from university as an intern for a full year? Those things need to be carefully considered because of the interrelationship between them, and because of the issues of taxation and finance involved.

My only concern about the amendment is that it calls for a report in 12 months’ time; I think that it needs to be sooner, rather than later. When the Minister replies, I hope that we will hear some supportive sounds about the probing amendment.

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Finally, I was quite surprised that when I tabled a Written Question asking how many interns there were in Westminster, the Government were unable to provide that information, which seemed to me bizarre.

Lord Mitchell (Lab): My Lords, I support my noble friend Lady Donaghy’s probing amendment. I have to make a declaration of interests. I am chairman of a company called Instant Impact. The principal business of that company is the recruitment of graduates from universities, which is obviously close to what we are discussing today.

“The condition of your birth does not determine the outcome of your life”.

Those are not my words, but those of an unlikely source, US Republican Congressman Paul Ryan, a staunch right-winger and not one we would expect to support the nanny state. Who among us could disagree with that?

Of course, in the Labour Party, we believe passionately that everyone should have an equal chance to succeed, no matter what his or her background may be, but the Conservative and Liberal Democrat parties are wedded to the same mantra: whatever our birth may be, each of us should have the same opportunity.

When most of us were young and seeking our first jobs, it really did not matter whether we had worked as interns. Indeed, the term barely existed. Sadly, all that mattered was where the candidate went to school and, more importantly, where the candidate went to university. In my case, Ealing Technical College probably did not stack up too highly. A good degree was a help, but not a necessity. A gentleman’s third-class honours was still acceptable with a wink and a rueful smile. That was true then, but no longer.

Today, the CV has become a rite of passage. It must be fine-tuned and honed, with not so much the right school, but certainly the right university and, without question, the right level of honours degree. The soft factors also count: sporting activity, cultural pursuits and charities supported. In a highly competitive world, whatever makes you stand out and interesting will help you to land the job you want. These days, young people need to include job experience on their CVs. They need to show that they have worked for a series of organisations and that they have become well rounded individuals. One of the ways that they do that is by becoming interns.

To the wealthy and well connected, getting their sons and daughters into suitable internships is relatively easy. I bet that many of us in the Room today have address books that other people would kill for. We have access to everyone who counts and, even if we do not, we have no problem in working the network to make sure that we get our children or grandchildren through the door. Some of us are able to fund our children if they do not get paid for their internship. After all, we can argue that it is the final part of their education and goes with the territory.

As a result, whole swathes of our economy are riddled with unpaid interns. The media, fashion, advertising and the new social media companies recruit unpaid interns at will, simply because they can. As has been said, how many Members of Parliament or Peers in our own

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Palace of Westminster have unpaid interns working in their offices or their constituencies? I do not know the answer but I would bet that the number is much higher than most of us suspect.

What happens if your parents do not have the contacts or are simply unable to fund you while you are working for nothing? I hope that the Government accept my noble friend’s amendment because we need more information about whether people are being exploited. If they are, I hope that the Minister will commit to looking at a four-week limit, as suggested by Intern Aware. I should like to hear the Minister’s views on this. I hope that she does not suggest—as the noble Lord, Lord Popat, did, when the noble Lord, Lord Storey, asked a Question in the House a few weeks ago—that we should refer to the Government’s Graduate Talent Pool for an answer. I have never heard of it and nor has anyone else I know. It really does not feature on the intern recruitment side. I also ask her not to suggest that HMRC has the powers to intervene and that it can hunt down any offenders. It is stretched to capacity, and anyhow it has other fish to fry.

There are many organisations that support the four-week limit. Axa, a major insurance company, says that a four-week limit to unpaid internships will ensure a fair opportunity for everyone. Ernst & Young says that young people deserve to be paid for the work that they do on internships, and if they do not, it is reprehensible. The wonderful Charlie Mullins, the founder of Pimlico Plumbers, a small business—which is not so small these days—says that it is completely reprehensible for companies to expect interns to work without pay. The ACCA has asked for an end to unpaid internships. RIBA expels members who use unpaid interns. UK Music says that interns should always be paid at least the national minimum wage. Lastly, the Times said in a recent editorial that the,

“abolition of unpaid internships is worthy and desirable”.

Under current national minimum wage law, an intern is entitled to pay only if they are working under a contract; of course, for a contract to exist it needs consideration. That means that if an intern receives nothing except expenses from their employer, the national minimum wage will not apply. The worst employers are exploiting this loophole and, under the law as it currently stands, there is little that can be done. The dice are loaded against those who cannot afford to take unpaid internships. The solution is not to discourage rich people from helping their children but to do a lot more to help clever kids who do not have wealthy parents.

Baroness Neville-Rolfe: My Lords, I thank the noble Baroness, Lady Donaghy, for raising this issue and giving us the opportunity to have a debate. She brings great knowledge and experience of all employment matters, notably as a former chair of ACAS and now from her work at the CIPD.

Internships can and do provide valuable opportunities for young people taking their first step in the labour market, and we wish to encourage them. Speaking for myself, last July I had the very happy experience of taking an intern from a modest social background here in the House of Lords, and over the years I took a good number of interns when I worked in retail, as part of

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sixth-form studies or college vocational assignments. I tried to take people who might not otherwise get a chance to come in and get work experience; that is a great thing that employers, and indeed the public sector, can do.

The term “internship” is of course a relatively new concept—and, I am afraid, like so much else, a bit of an Americanism. As has been said, there is no definition of internships in UK legislation. Individuals undertaking an internship may be workers, employees or volunteers, depending on the reality of the situation and not their job title or what an employer decides should be set out in a contract.

The flexibility of our labour market is a source of pride and there are currently more people in work than ever. In the past year alone the number of people in work rose by 512,000, so employment is now at a record 30.8 million, providing valuable opportunities to young people. Of this remarkable growth, eight out of 10 were employees and eight out of 10 were in full-time jobs. In a labour market as flexible as the UK’s, there are a multitude of possible employment relationships that suit the employer and the individual, and this has to include short-term placements, internships and work experience. There is no single test to determine whether a contract of employment exists and whether an individual is an employee. Only an employment tribunal can determine whether a contract of employment exists. I appreciate that sometimes this can be confusing and unhelpful. Last October, my right honourable friend the Secretary of State announced a review of employment status—rightly, I think—to ensure that these issues are considered. We hope that the review will conclude in March.

The noble Baroness’s amendment asks the Government to publish a report which would assess the growth of internships over the past five years, their incidence by sector, their average length and the subsequent career choices of interns. We are not convinced that it makes sense to write the requirement for a report into the Bill. Internship and work experience policy is a matter for the Government to consider as part of their normal work on employment policy. As I have said, we are looking at the issue in the context of a review of employment status, conscious of the need to preserve good practice in relation to work experience, where it exists.

I understand the concerns raised about pay and social mobility, and that some young people will not know about the opportunities or be able to find internships. I assure noble Lords that the Government are keen to work with employers and young people to ensure access to high-quality graduate opportunities and that is why we fund the Graduate Talent Pool service—which more people have probably heard of now, as a result of the Question in the House answered by my noble friend Lord Popat and because of the discussions on this Bill. The service is free to employers and graduates and provides information on all aspects of internships.

My noble friend Lord Storey asked about volunteers. Genuine volunteers who are not workers and who willingly give their time for free are exempt from the national minimum wage. The Government’s Social

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Mobility Business Compact seeks to influence business to remove barriers to social mobility and to promote open and fair access to opportunities. This is what the noble Lord, Lord Watson, and my noble friend Lord Storey seem to be seeking. There are a number of strands to this, including work experience and paid internship opportunities. We are involving education providers—schools, colleges and universities —so that they build up links with business and other employers, including charities, which is another important area.

There is an issue about the entitlement to the minimum wage and I should explain that an intern’s entitlement depends on their employment status. If the intern is an employee or a worker, they are entitled to at least the national minimum wage from day one, and all other rights attached to their employment status. If the intern is a volunteer, they are not entitled to the national minimum wage but can receive reasonable out-of-pocket expenses. This may be the only way that people can get work experience. I worry that regulation could be perverse in its effect, especially with small businesses which probably cannot afford the great schemes we have been talking about that are provided by the big accountancy and insurance companies and so on. It is quite a complex subject.

5.30 pm

Obviously, we need to ensure that interns are not used as a way of avoiding the national minimum wage, which has been a sense of the discussion this afternoon. HMRC prioritises calls from interns to the Pay and Work Rights Helpline, and I reassure the noble Baroness that HMRC will investigate every complaint. We recently increased HMRC’s enforcement budget from £8 million to £9.2 million, and will also increase the budget by a further £3 million in 2015-16, which will take the total to £12.2 million. The extra money will go towards increasing the number of HMRC compliance officers to identify businesses that exploit their interns who should qualify for the minimum wage by not paying them the appropriate rate.

There is a place for unpaid work experience; for example, for students working for one year as a required part of a UK-based higher education course. Another example would be participants in some government schemes, such as the Government’s traineeships programme, which is designed to provide training or work experience, or to help in seeking or obtaining work. However, we recognise that when the terms and conditions of an internship make that person a “worker”, they are entitled to the minimum wage. However, we do not require everyone on work experience to be paid the minimum wage. They are learning, broadening their experience, and businesses that provide them with the opportunities are making a social and usually local contribution. As the noble Lord, Lord Storey, said, volunteering and sandwich courses and so on must be supported. In looking at those issues, we have to bear that in mind. On volunteers, I further clarify that an employer can take on an intern on an unpaid or expenses-only basis only where the intern is not a worker or where some other exemption applies. I have already talked about student work placements.

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In conclusion, discussion of intern policy is an issue of the day, and will be taken forward in a number of forums now that the debate has been started and the numbers seem to be growing. It can be very valuable, and of course we need to ensure that the national minimum wage is observed. I hope that the noble Baroness has found my comments helpful and that she will agree to continue the discussion with me outside the Bill, but for the moment I ask her to withdraw her amendment.

Lord Mitchell: One word I did not hear—and I was listening very carefully—was “exploitation”. The feeling many of us have on this issue is that young people who are desperate to make sure that their CVs look good so that they can say that they have had the right experience are prepared to be exploited to make sure that their CV looks good. Many employers out there prey on them, and in many cases those situations where people are not paid can last for long periods of time. More than anything else, we want to address that.

Baroness Neville-Rolfe: I thank the noble Lord for that further clarification. There is a lot of common ground here. We need to address certain issues and, clearly, we are all keen to stamp out exploitation.

Baroness Donaghy: My Lords, I am very grateful to noble Lords who have taken part in the debate. I thank the noble Lord, Lord Storey, for his comments. Of course, there is no intention to interfere with the perfectly well known volunteer system or with anything to do with sandwich courses in universities. I think we all know what we mean when we talk about these cases, but we are not very strong on analysis, and we need to pin that down.

My noble friends have certainly pointed to the exploitation issue—that somebody can be very willing because of the future opportunities that an internship can give them. Because their family can support them they might grit their teeth and say, “Well, let’s put up with this for a few months, because it will open doors that otherwise will never be opened”. It is still exploitation. The vast majority of people that I am talking about do not even get through the front door; they do not even get through the door to enable themselves to become disgruntled, so that they can go for enforcement or to various websites to ask about it. They are outside this semi-privileged circle. That is the issue that I want to pinpoint.

Baroness Neville-Rolfe: It certainly has not been my experience—and I used to work outside London—that all internships are a gilded circle. Internships and work experience are quite broadly based in the cities of Britain, which is a very good thing. I am keen that that should continue in big firms and small firms, in the public sector and in the voluntary sector. We have to be careful that we do not take steps which, with the best will in the world, have a perverse effect, so it is right that we should debate these issues. Like the noble Baroness, I have a lot of passion to make these things work and to encourage more opportunities for more people.

Baroness Donaghy: I thank the Minister for that comment. I think that we are not too far apart on the need to identify and be more objective about what we

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are talking about. I am referring all the time in this amendment to unpaid internships. As I have said, I think that there is an element of exploitation. Perhaps any report or further discussion that we might have could look at some time limits that are acceptable. I am grateful for the Minister’s comprehensive reply. I will look at that in more detail but at this stage beg leave to withdraw the amendment.

Amendment 67ZT withdrawn.

Clause 148: Exclusivity terms unenforceable in zero hours contracts

Amendment 68ZU

Moved by Lord Young of Norwood Green

68ZU: Clause 148, page 137, line 27, at end insert—

“( ) The Secretary of State shall make regulations containing provisions and measures enabling and facilitating the enforcement by workers of the rights conferred under this section.

( ) Those regulations shall be laid before each House of Parliament in draft before being made, subject to the affirmative resolution procedure.”

Lord Young of Norwood Green: My Lords, I shall speak to a number of the amendments in this group as well as say a few words by way of a general introduction. The rise in the use of zero-hours contracts is a trend that should concern Members across the Committee. While a small number of people find this type of contract suitable, too many people from across the UK are at the mercy of unscrupulous employers who are exploiting this type of employment. The increasing reliance on this form of employment does nothing to promote the jobs that the country needs. For many employees, zero-hours contracts present huge drawbacks in comparison to permanent regular work. There is no guaranteed level of regular earnings to provide any certainty over meeting bills or planning for the future. By our very nature, we human beings need stability and certainty in our lives; these types of contracts do not offer that. The need to respond to calls to attend work, frequently at short notice, disrupts life outside of work and places a particular strain on families and on arranging care for dependants. One of the most concerning aspects about the explosion of such contracts is that women are likely to be disproportionately affected by them.

Zero-hours contracts by share of the workforce are most common in: the arts, entertainment, and recreation services—2.5% of the workforce; in accommodation and food services—2.2% of the workforce; and in healthcare services—1.2% of the workforce. Not surprisingly, they are most common among people in caring and leisure occupations, where it is 1.7%, and among the less skilled—1.4%. These industries have high percentages of female employees.

We welcome Clause 148, which introduces an exclusivity ban in zero-hours contracts. This is a welcome step forward from a Government who had to be dragged kicking and screaming on this issue, but they have fallen far short in bringing forward measures which tackle the exploitative use of such contracts. This does nothing to change the practices of companies that base their entire workforce management strategy on

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them. Our Amendment 68ZU would reinforce the powers of the Secretary of State. Amendment 68ZW, perhaps in time-honoured fashion, would delete “may” and insert “must”—I cannot think where I have encountered that before—while Amendment 68ZAB would extend the powers of employment tribunals.

This is a huge problem area, and we need to remind ourselves that workers in these circumstances find themselves in situations where they do not attract sick pay, holiday pay or national insurance contributions. While we would not deny that there are some circumstances where zero-hours contracts might be relevant and applicable, the numbers that we are currently encountering place a huge burden on the workforce. This disproportionately affects them in terms of the employment rights and benefits that the vast majority of the workforce would expect to be theirs as of right. In those circumstances, I beg to move.

Lord Stoneham of Droxford: This amendment is all very well but I am not quite sure where it is leading us. It is not very specific. The Government have included clauses to stop people being excluded from doing other work while on a zero-hours contract, which seems to go to the heart of one of the principal problems. Here we are talking in general terms about an obligation on an employer to offer a fixed-hours contract to a worker who has worked regular hours for a continuous period. I am not sure where that is leading to. It is very general, apart from saying, “What we really want is to get rid of all zero-hours contracts and put everyone on a permanent contract on a 40-hour week or 35 hours a week, or whatever it is”. That is not actually what zero- hours contracts are being used for.

I accept that there is some bad practice, which we want to see eliminated. Where there is discrimination or unfair practices, we should work at that. The principal source of exploitation is where people are excluded from doing other work by these contracts. Some of these contracts have worthwhile benefits, as we have seen during the recession. One thing that the recession has done is to enable people to share work around when it is limited. I suspect that as the work comes back, as it is clearly doing as we move out of recession, some of these problems will begin to fade in their severity.

Lord Young of Norwood Green: I want to make it clear that this is an attempt not to rule out zero-hours contracts but to introduce some reasonable ground rules. I shall give the Committee some statistics that it might find interesting. The Chartered Institute of Personnel and Development research last November noted that 83% of staff on zero-hours contracts had been engaged for longer than six months, and 65% had been engaged for two years or more. We have a situation in which 65% of staff on zero-hours contracts have been on them for two years or more; that is not a short-term need. If someone has been employed for that length of time, does the noble Lord really not think that they should be entitled to basic rights such as holidays, sick pay and pension contributions?

We are not embarked on a Don Quixote-like mission, tilting at windmills and hoping to abolish all zero-hours contracts, but we are on a mission to ensure that there

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is some fairness and reasonable ground rules. We are suggesting that if someone has been employed on a zero-hours contract for a reasonable period of time, it indicates that there is a permanent need for this type of employment. In such a case, they ought to have the employee rights that workers on full-time contracts would enjoy.

Lord Stoneham of Droxford: I thank the noble Lord for his speech and his intervention. I accept that there are issues here which we need to deal with but we are putting very general terms in here. One thing we do not want to do is to lose some of the flexibility which people have benefited from over the last couple of years, when work has been in short supply. One major problem is in the local authority area, where people are doing social care work. The Government should obviously look at and deal with this area, because they have the means to do so through their contracts, but I am not sure whether these general terms that are being looked for will actually do the job.

5.45 pm

Baroness Donaghy: I want to say a brief word about this because I must admit that I have a personal dislike of the phrase “zero-hours contracts”. Casual labour has existed for a very long time. It has had different names and different fashions have been followed. I think we are all aiming to ensure that while we do not completely get rid of a flexible labour market, basic employment rights are available to those who have spent any significant length of time in a particular job. We know what we are talking about here, do we not? There is the story of the burger operative—or whatever they are called—who was told that he was not working when not serving a customer. His pay was therefore suspended so that he was receiving pay only when he was serving customers. The argument then was, “Of course, the franchisee went beyond his remit”. That is a marvellous excuse made by some national brands; they can blame a local manager for doing something when the tone has probably been set at national level.

This could be extended to all sorts of other areas by saying, “You are not actually working”. I know that the noble Lord, Lord Stoneham of Droxford, used to work for the National Union of Railwaymen. I wonder if the same would apply to a train driver who is not driving his train while stopped at a signal, and therefore should perhaps not be paid until such time as the signal is green. That was how ridiculous some of these practices were on the ground. To go back to the reality of the casual world of work, as we know it in this country, those practices are not really funny. They are quite serious examples of exploitation so I make no apology for supporting my noble friend Lord Young on these amendments, if only to try to get to a situation where we are paring back all these gimmicky phrases and looking at people’s basic employment rights.

Baroness Neville-Rolfe: I thank the noble Lord, Lord Young, for these amendments and for the debate we have had on this part of the Bill, which went slightly wider than the amendments. I ought to say that Labour

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did nothing about zero-hours contracts for 13 years. The number of them went up by 75% between 2004 and 2009. What we have done is to carry out a review into these contracts, so that we can deal with any abuse. As a result, we are banning the type of contracts which mean that employees are not allowed to work for any other employer, while still allowing people such as students to benefit from the flexibility that they offer.

We introduced Clause 148 to deal with this mischief and I am glad to hear the noble Lord’s support for it and my noble friend Lord Stoneham’s perceptive analysis. The noble Baroness, Lady Donaghy, rightly tried to improve our English and not talk about zero-hours contracts. It may be that like one of the terms we were struggling with earlier, the term is an Americanism. Wikipedia does not give its origin but I will hunt it down.

At present, an individual subject to exclusivity terms in their zero-hours contract cannot seek work elsewhere, regardless of whether the employer offers only occasional, minimal, or even no hours of work. Exclusivity terms are unfair for the individual who, as a result, is prevented from boosting their income or building on their work experience. Frankly, it is also damaging to the economy because it prevents people from reaching their full employment potential.

As my noble friend Lady Harding made clear at Second Reading, from her own experience of running a supermarket in Yeovil, zero-hours contracts are an important element of a flexible, vibrant labour market, and they work for employers and individuals alike. I even heard the shadow Business Secretary agreeing that sometimes people quite like to use them. However, I think that we also agree that people working under such a contract must get a fair deal.

The ban on exclusivity terms in zero-hours contracts, as set out in the clause, is straightforward. From the moment the clause commences, individuals can simply ignore an exclusivity clause and work for another employer as well if they wish. There is no process, no admin and no need to discuss this with the employer—I am not sure that people understand this—and any attempt by the employer to stop a second or third arrangement would be unenforceable. This is a major change and a reduction in employer flexibility, but one that we believe is right.

Amendment 68ZU seeks to provide a route of redress for zero-hours workers who need to enforce their rights, allowing for regulations to set out the details. The clause already provides for an order-making power that will allow for this.

Amendment 68ZW seeks to make the use of that order-making power mandatory. However, given the fact that routes of redress will be delivered through the order-making power, I am sure that the Committee will agree that in this case the amendment is unnecessary. The Government will have to bring forward regulations; otherwise, the ban on exclusivity terms in zero-hours contracts will have no meaning. For this reason, I do not believe that we need to make this amendment. The regulations that will be possible under the order-making power will also be able to address the issue of redress that is covered in detail in Amendment 68ZAB; that is, that an employment tribunal will have the power to

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consider claims related to the exclusivity ban, including providing remedies to the individual and issuing penalties to the employer. The Government recently consulted on using the order-making power. We are currently finalising the details with a view to publishing the government response shortly on how we plan to tackle avoidance.

Amendment 68ZZ suggests that the definition of an exclusivity term is too narrow. However, the Government have looked at this and consider the description in new Section 27A(3) of the Employment Rights Act 1996, which will be inserted by Clause 148, to be sufficiently broad. It covers any provision in a zero-hours contract that prohibits working for others, as well as terms that require an individual to seek permission from their employer to do so.

I believe that our approach will deal sensibly and effectively with both avoidance of the ban and routes of redress for individuals on a zero-hours contract who suffer a detriment. I hope that on this basis the noble Lord will agree to withdraw the amendment.

Lord Young of Norwood Green: The Minister indicates that the Government have had some consultation and regulations will be published. I wonder if she will give some timescale for those.

Baroness Neville-Rolfe: My Lords, we shall be publishing them shortly.

Lord Young of Norwood Green: Prior to Report?

Baroness Neville-Rolfe: I will take that point away and do my best.

Lord Young of Norwood Green: Right. Obviously, as we said earlier, we welcome this measure. We are probing a bit to see whether or not the controls that the Minister referred to and the powers of the Secretary of State are sufficient. We will take into account the points that she made in her response, and we will consider whether we need to return to these issues on Report. In the mean time, I beg leave to withdraw the amendment.

Amendment 68ZU withdrawn.

Amendment 68ZV had been withdrawn from the Marshalled List.

Amendment 68ZW not moved.

Amendment 68ZX

Moved by Lord Young of Norwood Green

68ZX: Clause 148, page 137, line 36, at end insert—

“( ) Regulations made under subsection (1) shall include provisions—

(a) giving zero hours workers the right to be awarded financial compensation of amounts, and in circumstances, to be determined by the Secretary of State;

(b) giving employment tribunals powers to enforce their judgments, including the award of any applicable compensation as referred to in paragraph (a), or imposition of any applicable penalty, in cases involving zero hours workers; and

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(c) imposing an obligation on an employer to offer a fixed hours contract when a worker has worked regular hours for a continuous period, or series of continuous periods, of employment, to be determined by the Secretary of State.”

Lord Young of Norwood Green: My Lords, again, this amendment seeks to extend the Secretary of State’s powers and to make it more explicit in the legislation. That is justifiable in the circumstances and we have identified the relevant provisions. There is some flexibility in it, so zero-hours workers have a right to be awarded financial compensation, of amounts to be determined by the Secretary of State. Employment tribunals are given powers to enforce their judgments, which is relevant and reasonable in the circumstances. Returning to an issue to which I referred in an earlier contribution, it imposes an obligation on an employer to offer a fixed-hours contract when a worker has worked regular hours for a continuous period or a series of continuous periods of employment, to be determined by the Secretary of State. We are not seeking to do away with flexibility; we recognise that that is appropriate in some circumstances. However, we believe that at the moment zero-hours contracts are, in many circumstances, a bridge too far and that they deny workers basic employment rights.

Amendment 68ZAC is intended to ensure that workers are fully enabled and empowered by understanding the nature of the zero-hours contract, so the employer has to provide basic information about terms and conditions for all zero-hours workers within two months of their start date. Again, we think that is a reasonable requirement. We regard a contract of employment as an inalienable right of workers and we seek to extend that right to those on zero-hours contracts. I beg to move.

Baroness Hollis of Heigham (Lab): My Lords, I support the amendments in this group. The daughter of a friend works for a burger company and is on a ZHC. She does not know until the previous Friday what hours she will get for Monday. She cannot plan her life; she cannot budget; she cannot buy any large goods; she cannot study. She cannot do another job alongside it—I am delighted that the Government are moving to stop that ban continuing—and, if she were not living it home, she could not rent, as landlords want evidence of steady income. The Unite union, which has done splendid work on this, was told by a call-centre worker, who had worked for a multinational firm for five years: “I am only informed if I have shifts one week in advance and the hours I am given can range from nought to 48. I feel regularly anxious about whether I will be able to pay the rent and put food on the table.” She too is on a ZHC. A third person on a ZHC, a lone parent, expects, and is expected, to work on Fridays and had arranged and paid for childcare, as she must. Her shift was cancelled an hour before and she was told to work on Saturday instead. She had to pay for the childcare she did not need on Friday but could not find childcare for the Saturday when she needed it, so she refused. Her hours were cut the following week as punishment.

As my noble friend Lord Young said, we estimate that nearly 2 million people are on ZHCs in cleaning and domiciliary care, retail, hospitality, catering, call

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centres, construction and customer services, with wages at or around the minimum wage. Some 75% of those on ZHCs find that their hours vary every week and 40% are not allowed to work for anyone else, although we welcome the fact that this Bill begins to address that problem. They are on call—unpaid—and required at an hour’s notice. They are hoarded but not used, a sort of just-in-time stock control applied not only to tinned tomatoes but to staff. Of course, after six months they should be given a proper fixed-hour contract. We may be in a 24/7 economy, which needs a flexible labour market, but, as Pickavance argued in his report, fluctuating demand—the excuse for flexible labour and ZHCs—is largely predictable.

6 pm

In response to the noble Lord, Lord Stoneham, why does Boots need zero-hours contracts but not Marks & Spencer? Why McDonald’s, Burger King, JD Wetherspoon and Subway but not Pret A Manger? Why Sports Direct but not Halfords? Why Cineworld but not Center Parcs? Why, apparently, Lloyds but not Barclays?

Ministers often state—I am sure that we will hear this today, as indeed we did just a moment ago—that zero-hours contracts are preferred by some workers, but they always overstate that. A few welcome such contracts—students, perhaps—and my research shows that the recently retired, looking to top up their pensions, are happy with their flexibility. I also accept that there may be a place for zero-hours contracts in better-paid jobs at the upper end—in IT, for example; in FE, where extra teaching cover may be necessary; for irregular arts events; and even for nursing banks. However, all the evidence from other groups that I have seen—a pile this high—is that staff want the right, whether or not they take it up, to regular hours. At the minimum wage end, ZHCs are lazy, exploitative management by employers and HR staff who want to take short cuts in their own jobs and short-change other people’s jobs.

I ask the Committee to think about the implications for those on ZHCs who also need help from the benefits system, which is largely why I am engaging in this debate today. Say that over a month, a lone parent on a ZHC works 20 hours in the first week, 15 in the second, 10 in the third and 22 in the final week. In weeks one and four, because she is working more than 16 hours, she gets working tax credits from HMRC to top up her pay. In the two middle weeks, working 15 hours and 10, she does not get tax credits. If she gets fewer than 16 hours a week, she may be able to claim JSA from the DWP—if, of course, she is available for work, but on an exclusive contract you are not able to do that. So what does she live on in those two middle weeks? Tiny earnings, topped up by payday loans because she has no rights to top up by benefits.

Not surprisingly, according to the Resolution Foundation, nearly 1 million people are spending more than 50% of their disposable income on debt repayment —debts taken to smooth their income in a zero-hours world. Each week there are different earnings to report to different government departments: in my example, weeks one and four to HMRC, weeks two and three to the DWP. This is all paid in arrears, of course, so the

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money does not come when you need it. What is more, each month you have different earnings to report to the council and local authority for your housing benefit and your council tax reduction. It can take weeks to process each claim, and that too will eventually be paid in arrears. In the mean time—I should perhaps declare an interest here as chair of a housing association —your rent arrears may grow and you face eviction.

How many of us could live like that, dealing with three or four different agencies week by week as well as the employer, never knowing what your earnings and income will be, what any benefit top-up will be and when any of it may arrive? Are we then surprised that many lone parents prefer the security of low but predictable benefit income to the snakes and ladders of ZHCs? Universal credit will help, but its payment methods—claims filed only online, with no possibility of correcting errors, and a single monthly payment made in arrears—will worsen many people’s plight.

It seems therefore right and fair, as Pickavance recommended, that you should be able to move on to a fixed-hour contract after six months so that you know what your income will be.

It seems right that if you remain on ZHCs, you should, if a shift is cancelled at short notice, be given compensation for loss of earnings, travel expenses and, possibly, childcare. Of course, employment tribunals must be able to require exploitative employers to conform. We need proper contracts to corral the cowboys. The sadness is that so many of those cowboys are high street names which we have held in high regard—no longer.

Baroness Neville-Rolfe: My Lords, I am grateful to noble Lords for their amendments and the opportunity further to debate aspects of zero-hours contracts. I am also grateful for the clarification by the noble Lord, Lord Young, that he does not want to get rid of all flexibility. I was also very glad that the noble Baroness, Lady Hollis, joined our discussion. Her three case studies demonstrate the need for Clause 148.

As I set out in our previous debate, the Government recently consulted on the matter of avoidance and routes of redress, including powers to go to employment tribunals and seek compensation. I am pleased to reassure the Committee that that is already possible under Section 27B in Clause 148.

Amendment 68ZX would require employers to offer fixed-hours contracts once an individual has worked regular hours as determined by regulations. The noble Baroness, Lady Hollis, mentioned six months. Before I respond, let us reflect on how those with zero-hours contracts feel about their employment. The CIPD survey published in November 2013 found that many individuals chose to work on a zero-hours contract and were found to be more content than those in permanent employment. I accept that there will be hard cases but these are overall comments. Zero-hours workers, when compared to the average UK employee, are just as satisfied with their job, happier with their work-life balance and less likely to think that they are treated unfairly.

To respond to the point made by the noble Baroness, Lady Hollis, fluctuating demand is not predictable. My noble friend Lady Harding told us about that at Second Reading from her experience. Even the noble

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Baroness acknowledged that there are sectors of the workforce and individuals—students, those in IT, the recently retired, and many others—who are happy with zero-hours contracts, and, of course, happier to have a job than not to have a job. Imposing restrictive criteria over how a zero-hours worker can be employed may have the perverse effect of discouraging employers from creating jobs at all.

I appreciate that that is not the noble Lords’ intention, but I know that the Committee will understand the risk of unintended consequences, because it is something that we consider a lot when we are trying to legislate in this House. There is a clear risk that employers will simply let people go, or offer no work at the end of a qualifying period to avoid converting the contract to fixed hours. It would also be very difficult to define what is meant by “regular hours” in all those different industries.

The Government have already made some changes in this area. The flexible working regulations were amended in June 2014 to ensure that any employee can request flexible working. That is just as relevant to someone on a zero-hours contract as it is to a permanent member of staff. If a zero-hours worker is an employee and can show 26 weeks’ continuous service, they can make a request for formalised hours or a particular shift pattern.

Amendment 68ZX also requires a right for zero-hours workers to be provided with financial compensation. As I understand it, that power is already provided for in the clause.

Baroness Hollis of Heigham: The Minister says that people are satisfied with that. I was just checking my statistics from the CIPD, in which only one in five older people prefer the contract that is being offered them; the other four-fifths would like regular hours. The problem is that you cannot run a second job alongside a first—which is the point of Clause 148, which we all welcome—unless you know what your hours in the first job will be. It is very simple. Unless you have the ability to turn it into a reliable, regular, predictable contract, with the exceptions that we all agree may well be necessary—in IT, arts events, so on and so forth—the freedom you are giving in Clause 148 will be partly illusory. You cannot do it.

Baroness Neville-Rolfe: I thank the noble Baroness for her clarification. This is not an easy area. I also note that she made a number of good points about bad employer practices. I will mention something we are doing that may help on all these points. We have already encouraged business groups and unions to develop codes of practice. Those need to be sector-specific and industry-led, as we think that creates the most impact. A one-size-fits-all solution from the centre will not work, for exactly the reasons that we are debating this afternoon. The guidance would include, for example, in what circumstances a zero-hours contract is appropriate and where it is not, and the kind of considerations mentioned by the noble Baroness will be relevant.

Amendment 68ZX also seeks powers for employment tribunals to enforce their own judgments. Well established court-based enforcement options are already available to enforce employment tribunal awards, such as the

26 Jan 2015 : Column GC42

fast-track system or county court in England and Wales and the sheriff courts in Scotland. The primary function of the employment tribunal is of course to provide a forum in which parties can resolve their disputes and obtain a judgment. The employment tribunal does not have responsibility for the enforcement of the awards it makes to individuals. Tribunal-led enforcement of its own awards would represent a fundamental departure from the normal principles of civil justice and enforcement. If the enforcement of employment tribunal awards for zero-hours claims became a tribunal-led affair, many other employment tribunal and civil court users would begin to question why the tribunal or court did not pursue or enforce its judgments or awards.

Amendment 68ZAC suggests that zero-hours workers should be provided with information about their basic terms and conditions within two months of their start date. I agree that employers should provide their staff with clear terms and conditions, and I reassure noble Lords that employees are already entitled to a written—or, I think and hope, online—statement of the particulars of their employment arrangement. That entitlement applies to individuals on a zero-hours contract if their employment status is that of an “employee”. However, the Government acknowledge that there is a wider issue about whether all workers, regardless of their employment status, should be entitled to a written statement. That is being considered as part of the review of employment status, including the risks, impact and opportunities involved in any new arrangements, which I mentioned when we were discussing interns. Officials will report to Ministers on the outcomes in March.

The noble Baroness, Lady Hollis, also talked about the interlink between zero-hours contracts and jobseeker’s allowance or universal credit. Universal credit was of course designed to be responsive to fluctuations in earnings—it is different in that way, and to my mind better—so, for people who are working, financial support will be reduced at a consistent and predictable rate. In weeks where a claimant has lower or no income from their zero-hours contract, universal credit payments would increase.

Baroness Hollis of Heigham: The point is that if you are going to be paid only at the end of the month, what do you live on in the mean time? Just to make it clear, your universal credit payment will be paid in arrears at the end of the month. However, you learn only at the end of the second week that you do not have the income. Although I absolutely agree that UC will reflect the total earnings over the total month, what do you live on in weeks two and three?

Baroness Neville-Rolfe: The noble Baroness makes a point that bears on the universal credit payment system in the round. I think that the clause is actually helpful, compared to the status quo, if we make these changes on zero hours. I am advised that universal credit is paid in real time, so if the claimant informs the system in real time, they will get the money. I must apologise that I am not a welfare expert, I am a Business Minister.

6.15 pm

Baroness Hollis of Heigham: Whether it is the handwriting or whatever, it is certainly the case that UC will be based on real-time information, but the payment will

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be made at the end of a month in arrears. Therefore you have the problem of income-smoothing when you have unpredictable hours, and we know that the hours of 75% of people on ZHCs vary every week. That is why, going back to Clause 148, I ask how you can run a second job with unpredictable hours if your first job has unpredictable hours. Your two employers may want you at the same time, but neither employer may want you at another hour.

Baroness Neville-Rolfe: The noble Baroness makes a good point. In a sense, that is a problem for employers, who could previously have a zero-hours arrangement that was exclusive. As I explained in opening, we have decided that that should not be the case in future. I am sure that the new arrangements will take some thinking about and settling in but, as far as I am concerned, if you are on a zero-hours contract, you can offer your services to—I do not know—two fashion magazines rather than just one. That is an excellent move forward. In any event, many people on zero-hours contracts who benefit so much from them, especially those in the categories that we were talking about, are not looking for universal credit, as the noble Baroness acknowledged.

I have probably taken this as far as I can this evening. I have tried to set out why we are proposing this, and I hope that the noble Lord will feel able to withdraw his amendment.

Lord Young of Norwood Green: I was interested when the Minister said that one of our amendments, seeking compensation if shifts were cancelled at short notice, was catered for in the Bill. I had another careful look and I presume that she is referring to new subsection (5)(c) on page 138, which states rather broadly:

“requiring employers to pay compensation to zero hours workers”.

It does not state in what circumstances. I would welcome some clarification. If that is not possible today, it is still an important issue that requires an answer in writing.

Baroness Neville-Rolfe: I thank the noble Lord for raising the issue. I was going to deal with it in my response, but decided not to because of the complexities. I can give him some comfort but the best thing is to consider the questions that he has asked and write to him and copy that to other noble Lords, because this is obviously an important issue.

Lord Young of Norwood Green: I think the noble Baroness for her response. It has been an interesting debate. I thank my noble friend Lady Hollis for her usual forensic analysis. We will need to consider our response in the light of the Minister’s answers. Although we do not necessarily have an agreement on this, we are seeking to improve the Bill. We are not seeking to abolish flexibility or all zero-hours contracts but we seek to create a fairer scenario for workers employed in those circumstances. With those caveats, I beg leave to withdraw the amendment.

Amendment 68ZX withdrawn.

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Amendment 68ZY

Moved by Baroness Hollis of Heigham

68ZY: Clause 148, page 138, line 7, at end insert—

“( ) Such workers shall be eligible for inclusion within the national insurance system where the relevant worker’s annual earnings exceed £3,000 per year.”

Baroness Hollis of Heigham: My Lords, this is a probing amendment to analyse the relationship between the flexible labour market and the benefit system that is supposed to support it and which often fails to do so. Some 6 million people in this country have part-time or flexi-hour jobs, and well over 1 million—probably nearer 2 million—are on ZHCs. Most are on or around minimum wage. Unite estimates that half of all workers under 30—that is 3.75 million—are on ZHCs and other short-hour contracts.

As I have said in relation to a previous amendment, of those who are on a ZHC, 75% find that their hours vary every week; only one in five have the same hours and thus the same pay each week. Many do not know on Friday what hours and what pay they will get on Monday.

We have already discussed the abuses that workers may face: unpredictable hours, low pay—nearly 60% of those on ZHCs earn less than £500 per month, with no proper contract, no reliable income, shifts cancelled at an hour’s notice and no ability, which the Bill addresses, to work another job alongside it. There is one other downside that has been largely overlooked and which applies not only to ZHCs but to any part-time job: the interaction more fully with the benefits system. The CIPD, whose figures I have with me, found that 37% of people on ZHCs—that is, 400,000 people—as well as hundreds of thousands of others in short-hour jobs work fewer than 16 hours a week, most at or around minimum wage, in any one job. Tesco was recently recruiting some 800 staff. Ninety-six per cent of the vacancies were for part-time positions, deliberately designed to save the company paying employer national insurance and thus saving Tesco some £100 million a year, even though that left many of its employees without national insurance rights.

Snapshots of Jobcentre Plus show that the majority of jobs usually advertised are part-time, which can mean that those filling them do not come within the national insurance system. As I am sure the Committee knows, for you to come within the NI system you have to earn at least £5,700 in any one job, although you and the employer do not pay NI rates until you are earning at the primary tax threshold of £7,500. Cruelly, and completely irrationally, if under the new freedoms you run three £5,000-a-year jobs alongside each other—for example, cleaning, work in the lunchtime sandwich shop, local newsagent or launderette, or bar work—although your £15,000 income from your three £5,000 jobs is amalgamated for tax purposes it is not amalgamated for national insurance purposes and you are outside the system. I estimate that some 200,000 people are caught this way. We can argue the statistics but I have had the privilege of being a member of a working party on this subject, chaired by the IFS and set up by the Minister’s right honourable friend in the other place, Steve Webb.

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The Bill rightly allows people to run two ZHC jobs alongside each other but that will substantially increase the number of people caught. Although their amalgamated income would take them over the NI threshold, because they have to earn more than £5,700 in any one job, they are still penalised. Such jobs are not temporary contracts for entry-level jobs. As my noble friend Lord Young said earlier, half of those doing them stay for more than two years and one-quarter stay for more than five years in such ZHCs.

Who are they? People can be credited into the national insurance system if they are unemployed and on JSA or ESA, if they have children under 12, if they are caring for older people for more than 20 hours a week or if their household income is so low that they will qualify for universal credit.

Who then is excluded from coming within NI? They may be young people living at home. Rather than live off benefit, which would bring them into NI, they are bravely patching together an income that does not. If you are unemployed you get NI, but if you piece a living wage together through two or three jobs then you do not.

They will, in particular, be middle-aged women with children over 12, whose partner’s income floats them off universal credit but who have one, or three, part-time jobs, all below the lower earnings limit, which they have fitted around their family life and caring responsibilities for years. Does it matter? Why am I banging on about this? Without NI, you lose statutory rights to sickness, holiday and maternity pay. Above all, you fail to build your 35 years towards a full state pension. This mattered less until the spring because, in the past, married women could derive a state pension from their husbands—the 60% dependency pension. In future they will not be able to get a pension through him, or through their own work, even if they are working 30 hours a week in three ten-hour jobs. They will go into retirement with much lower pensions. If you lose seven years of NI contributions, and many women in their 40s and 50s may be working without NI contributions for seven years or so, your state pension on retirement drops, on current figures, by £30 a week for the rest of your life.

I have tried, and I am still hopeful that another Government may be able, to amalgamate a couple of mini-jobs for NI purposes, just as they do for tax, to bring a worker into NI. I recognise that in the past the difficulties in doing this were with divvying up the employer’s contribution among two or three mini-job employers and collecting the appropriate information about hours of work. I acknowledge that those two roadblocks were real but we are allowing the self-employed to acquire the full new state pension without an employer’s contribution, so that problem has disappeared and, as the Minister has said, we are collecting real-time information for UC so we can track it all. We could therefore treat people with ZHCs as though they are self-employed or, if they are working less than 16 hours in any of their jobs but at least that in total, they could be regarded as meeting JSA work conditionality and be credited in. We could let older workers, especially women, revisit their national insurance record at the point of retirement to make good any shortfalls, whenever

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they had occurred, and not confine their ability to do that to the last six years of working life when family pressures—and, therefore, their exposure to a bundle of mini-jobs that did not bring them into NI—may well have occurred much earlier than this.

The coalition Government have, wrongly, refused all such possibilities. With this amendment, I am trying another path to again get people on ZHCs into the national insurance system. Revisit the lower earnings limit, the point at which you come into national insurance. It is currently £5,700 but you do not pay it until £7,500. You could abolish the LEL altogether. After all, if you are on JSA, ESA or UC you come into the national insurance system as of right, without paying a penny and, at that point, without working. It is therefore arguable that there is no point in the LEL any more. However, if that is too radical, I make a more modest suggestion that anyone earning £3,000 a year in any one job—that is £60 a week, or around 10 hours per week at minimum wage—should be credited into NI. A few weeks back, I tabled a Written Question asking what the net cost of this would be, given that so many people are credited into NI without any wage from work. I did not expect it to be high. The noble Lord, Lord Deighton, helpfully replied that the information was not available, which I find hard to believe. I am glad to see the noble Lord, Lord Newby, here; perhaps by now the Minister has had the datasets sorted. That is the reason for this probing amendment.

More positively, we know that the best predictor of anyone in a full-time job is that they held a mini-job the year before, and that a zero-hours contract job of around 10 hours may be a stepping stone back into the labour market for older women. It may, over time, add to our tax and NI receipts.

However, the real case for the amendment is a moral one. We are—some of us—happy to have a flexible labour market in which all the risk passes to the worker, who is then exposed to an exploitative labour market and a rigid and inflexible social security system. Even with this Bill, and even being able to work a couple of ZHCs together—which will be difficult, given that you cannot predict the hours in either of them—you still have to get above the LEL in any one of them to come within NI, so the risks of losing years of your state pension accrual remain.

The flexible labour market will send hundreds of people into retirement with an incomplete state pension, simply because issues such as these are off the Government’s radar. I beg to move.

6.30 pm

Baroness Drake (Lab): My Lords, I support Amendment 68ZY. My noble friend Lady Hollis has been tenacious in seeking to achieve fairness for a section of the workforce that is excluded from the national insurance system.

As my noble friend explained, this group of workers is caught by the rules whereby someone has to earn, in a single job, an amount above the lower earnings limit—£5,700 a year—to come into the national insurance system, although they do not have to pay national insurance contributions until they earn more than £7,500 in a single job. If, however, they have two or

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more short-hours jobs—mini-jobs—all of which pay below £5,700 but which may involve them working, say, 30 hours a week, they cannot add the wages of those jobs together to get above the lower earnings threshold and into the national insurance system. The amendment is simple. It proposes lowering the earnings threshold for entering the national insurance system to allow many more of the growing number of workers on mini-jobs and non-guaranteed hours to get into the national insurance system.

In the past, it was thought that perhaps 50,000 people, mostly women, were affected, as they sought to get an income by putting together a series of mini-jobs. But the scale of the problem is now far greater because of the increase in the use of zero-hours and minimum guaranteed hours contracts in the economy, which can deliver little or no wages in some weeks if little or no work is offered. Workers may need several casualised jobs to get an income but then find that not one of them pays above the £5,700 entry level for the NI system.

According to the ONS’s Annual Business Survey in January 2014, there were some 2.7 million zero-hours contracts, of which 1.4 million provided work to people and 1.3 million did not. The 2011 Workplace Employment Relations Study revealed that 23% of workplaces with 100 or more employees used zero-hours contracts. My noble friend has provided far more detail on the growing evidence available but it is clear that the number who find themselves excluded from the national insurance system will increase.

A modem welfare system has to be inclusive and responsive to the realities of the contemporary labour market. Over the years, Parliament has recognised the unfairness of locking certain groups of people out of the national insurance system and has amended the rules accordingly. As my noble friend listed, mothers of children aged under 12, disabled people, carers, a grandparent caring for a child whose mother works, and the unemployed on JSA are credited into the national insurance system. It seems all the more unfair that there is a group of workers whose pattern of employment and earnings does not deliver wages in any one job sufficient to meet the entry point of £5,700 for the NI system and they cannot add their wages from their other jobs to get through the turnstile. A hundred pounds per week, which is below the lower earnings limit, equates to almost 16 hours on the national minimum wage, so a person with more than one such mini-job could be working a significant number of hours but still be excluded.

Universal credit is income-based so it will not provide a comprehensive solution to this problem. For example, if a single person is earning more than £4,000 a year in any job, they are above the level for universal credit so they do not get credited in. However, £4,000 is significantly below the lower earnings limit of £5,700 and if not one of their mini-jobs pays above this level, they still cannot get credited in. My noble friend gave us another example. If a partnered woman is working but has no single job paying wages that reach £5,700, and if her husband is in work and they have two children aged over 12 when his earnings float him off universal credit, the woman cannot get credited through to the

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national insurance system. The need to address the position of such women is made even more urgent because from April 2016 these women will no longer be able to gain state pension though their husbands, as the married women’s dependency pension will cease. They will be locked out either way you cut it. Yet the ONS report revealed that women make up a greater proportion of those on zero-hours contracts, and that people who report being on such contracts are more likely to be younger and, I presume, to be single.

The Secretary of State, Vincent Cable, and other employer bodies such as the EEF, the CBI and the IoD argue that zero or no guaranteed-hours contracts have a place in today’s labour market and that employers need flexibility in today’s global economy to manage the consequences of economic downturns. If that is the case, the issue of workers who accrue income across one or more contracts but cannot enter the NI system is here to stay. It means also that it is here to be addressed. The right of businesses to employee flexibility should not deprive workers of access to the national insurance benefits system—but that is exactly what it is doing and will do, unless the problem that my noble friend has so tenaciously and consistently articulated is addressed.

It is argued that such zero-hours contracts are required to meet a short-term need of employers but the persistency of zero-hours contracts is evidenced by the Chartered Institute of Personnel and Development, whose findings indicate that of the workers affected, 65% have been on such contracts for two or more years, 40% for five or more years and 20% for 10 or more. The employer’s need may be short term but the employee’s contractual position can be long-term and bring a long-term lock-out from the national insurance system. The Government’s ban on exclusivity clauses in zero-hours contracts allows people to work for more than one employer but will not provide a definitive solution to the problem. The freedom to have several contracts does not provide entry into the national insurance system if none of them produces a wage above £5,700.

My noble friend Lady Hollis has faced varied rebuttals from the Government on her proposed solutions: that it is not reasonable to try to share employer’s NI across mini-jobs; that the women will still not want to pay class 1 contributions; that there are only a few of them; that their situation is temporary; that they have time to make up missing years; that universal credit will solve it and that, if all else fails, there is pension credit. That persistent rebuttal is becoming increasingly hollow, though, since both the Secretary of State and business itself confirm that there is an integral need for these minimum and no-guaranteed-hours contracts as a functioning part of a modern labour market, so we need to find a solution.

I repeat: over the years, Parliament has recognised the unfairness of locking certain groups out of the NI system, including the state pension, and has amended the rules accordingly. As my noble friend has advised, it has rightly accepted that those who are unemployed and in receipt of benefits such as JSA, have no employer and do not pay national insurance are in the national insurance system. Those who are lucky enough to get

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a single job earning £6,000 or £7,000 do not pay national insurance contributions but are also in the system. Lowering the lower earnings entry point to allow many more of the growing number of those on mini-jobs and no-guaranteed-hours contracts to enter the national insurance system has the merit of simplicity and is the fair thing to do.

Lord Young of Norwood Green: My Lords, after that forensic double examination, I cannot help reflecting that I am glad I am not responding. I support the amendment because it raises a significant issue. I also want to add the point that here are a Government who say that the best thing we can do is to encourage people to get into work, and I think that that is right; people who are locked out of the employment market, for whatever reason, face a real challenge. So these are people who are determined to work, which is what the Government want them to do, and determined to make a contribution not only for themselves but for their families, yet they are being penalised. The case being made is a valid one. We recognise by the nature of the contributions that this is quite a complex issue, so I look forward to the Minister’s response.

Lord Newby (LD): Such expectation, my Lords. I know that the question of NI eligibility raised by the amendment is one about which the noble Baroness is deeply concerned and has been for some time; this is not the first time the issue has been raised in your Lordships’ House by her and others. I hope that I can reassure them that the Government are already actively considering this matter, and I look forward to working further with her on this outside the debates on the Bill, to see how best it can be addressed. We are in no sense claiming that this is not a valid issue.

I know that officials from a range of government departments have already been in discussion with interested parties, including the noble Baroness, over recent months, and this work has been considering the evidence base around the matter of national insurance eligibility. As the noble Baroness is aware, it remains a work in progress and we believe that we do not yet know enough to make a sensible legislative change at this point. There are many complex issues regarding the scale of the problem and how to address it.

The noble Baroness raised the figure of 200,000 people who might be affected by the problems that she has so graphically described, but these figures do not align with DWP analysis, which suggests that 50,000 individuals are affected and that the group is disproportionately made up of under-25 year-olds. The noble Baroness laughs but the DWP is not coming up with a low figure for the sake of frustrating her; that is its best view. That is why we need to do more work on the issue.

6.45 pm

The amendment specifically seeks to change the position for zero-hours workers who have annual earnings above £3,000. The issue of low earners not gaining entitlement to contributory benefits is, however, not one exclusive to those on zero-hours contracts, and as such it is right to consider it as part of the wider work already under way. The amendment would mean that

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a person on a zero-hours contract who earned £60 per week would gain access to contributory benefits. However, someone who worked a limited number of guaranteed hours each week—that is, not on a zero-hours contract—earning £110 per week, would not. I am sure that the noble Baroness, Lady Hollis, would agree that that would at best be a partial solution.

Baroness Hollis of Heigham: I am sorry—I did not understand that sentence at all. Would the noble Lord care to explain to me why somebody on £60 a week would be in the contributory system, while somebody on £110 would not?

Lord Newby: I am drawing the distinction between somebody who is on a zero-hours contract at that level of income and somebody on a higher level of income, on a straightforward contract, which might pay £5,000 a year. The noble Baroness’s amendment deals solely with people on zero-hours contracts—that is what the clauses deal with.

Baroness Hollis of Heigham: No—that is not a correct statement. I made it very clear in my opening remarks that this is a problem. My amendment says:

“Such workers shall be eligible for inclusion within the national insurance system”,

and that does not exclude others. I would obviously expect, as the noble Lord absolutely rightly recognises, that that would apply to people on ZHCs. However, as I made very clear in my opening remarks, this affects all those on short-hour or part-time contracts, where in any one job they are not over £5,700, but could by aggregation or in this way, by lowering the LEL, come within the NI system. If we believe in encouraging people into work, we should do this.

Lord Newby: My Lords, I was not suggesting that the amendment would exclude the possibility of further provisions being made for people who are not on zero-hours contracts. However, the amendment would amend a clause that deals specifically with zero-hours contracts—that is what the Bill deals with. It is not dealing with people who are on straightforward contracts for, say, five hours a week. That is the point I am making, that this is partial. I am not saying that that means it is worthless; I am simply saying that it is a partial solution, even if the Government were to accept it.