Business and Trade Committee
Oral evidence: Make Work Pay: Employment Rights Bill, HC 370
Tuesday 17 December 2024
Ordered by the House of Commons to be published on 17 December 2024.
Members present: Liam Byrne (Chair); Antonia Bance; John Cooper; Sarah Edwards; Alison Griffiths; Charlie Maynard; Gregor Poynton; Mr Joshua Reynolds; Matt Western; Rosie Wrighting.
Questions 26-43
Witnesses
II: Matthew Percival, Director, Future of Work and Skills, Confederation of British Industry; Ben Willmott, Head of Public Policy, Chartered Institute of Personnel and Development.
Examination of witnesses
Witnesses: Matthew Percival and Ben Willmott.
Chair: Welcome to the second panel of our first session of inquiry into the Employment Rights Bill and industrial relations. We are very grateful to Matthew Percival and Ben Willmott for joining us today. For this panel, Alison Griffiths will open the questioning.
Q26 Alison Griffiths: Matthew, taking stock of the 2024 Budget and the Employment Rights Bill, can you give us the business view of how the cost of business is changing?
Matthew Percival: Of course. Thank you very much for the opportunity to come and speak to you this afternoon. It is very helpful to do it. This is my last stop before Christmas, so a cheerful occasion.
For a while now, when we have surveyed our members, I have asked them what their concerns are about the future competitiveness of the labour market. The No. 1 risk is access to skills. Since the pandemic, the No. 2 risk shooting up has been access to labour—just enough people. Even if we offer the training, there are not enough people to take it on board. The No. 3 risk, which has been coming through consistently, is labour costs. That is not exclusively thinking about wages and benefits; that is the total cost of employing somebody, which is why your reference to the Budget is relevant, particularly the threshold changes in national insurance contributions. That was a much more surprising factor; it was the bit that caught businesses unprepared and by surprise. This total envelope for employment costs has been a real concern for competitiveness.
It is important to think about the relationship between employment costs and investment in a company in seeking to increase productivity. It is a common argument—to some extent, a cross-party argument—that giving businesses a stronger incentive to invest in productivity would be part of helping to boost productivity and increase wages. The political debate has not caught up with the extent to which the cost of living crisis and other factors have already driven that right up the agenda. Businesses have a really strong incentive to consider alternatives to just creating more jobs, and to try to actually boost productivity instead.
We have a high employment rate. There is some uncertainty about the quality of the labour market data at the moment, but if anything there is a suggestion that the employment rate might be even higher than the official statistics suggest. If we are therefore going to get growth in the future, it must come from productivity growth and business investment. The position we are in is that businesses are struggling to have the headroom to invest, rather than requiring a stronger incentive.
Q27 Alison Griffiths: In the light of that answer, how have the Government performed so far in producing a coherent package of reforms and incentives to drive up pay and rights at work?
Matthew Percival: At the moment, I think there is a stronger agenda for driving up pay than driving up productivity, which is part of the challenge. We are finding that businesses are already having to face those trade-offs, where they lose the headroom to be able to invest. They are increasingly forced to think short term rather than longer term. Part of our challenge is, “How do we encourage companies to think longer term and make investments?” It is about being able to break that cycle while, at the same time, dealing with concerns about living costs. That is part of the challenge in this mix.
Q28 Alison Griffiths: In your view, what does “good” look like when it comes to a new settlement for industrial relations?
Matthew Percival: A new settlement for industrial relations needs to recognise the importance of reasonableness on all sides. There are some aspects of the Bill that can be helpful in that regard, but there are others where it seems that the question, “What happens if an employer is minded to behave unreasonably?” has been asked. It does not look like the question, “What happens if a trade union might be behaving unreasonably?” has been asked.
For the same reason that we have employment law, which is there to protect workers not because we think all businesses will treat them badly but because a small minority might, I believe that the law also needs to think about what might happen if a trade union is determined to behave unreasonably. A number of the changes at the moment fall foul of that test, for me.
Alison Griffiths: Can you be more specific?
Matthew Percival: For example, if we had a result for recognition that was a simple majority of those voting, but there were thousands of workers and only 5% of them voted, it would hardly be a resounding vote. It could be possible under these rules. I think there needs to be a replacement for the support threshold—either retaining it at its current 40% or considering what an alternative would be. The extreme result of one person voting for a union when no one else could be bothered to vote, and the recognition happening, is possible under the rules. Things such as that would therefore be areas where we would think, “How do we make sure that this can be supported?”
Employers should be working with the chosen representatives of the workers. There should be no undue barriers to workers to be able to join a trade union, and they should be aware of their rights and be able to exercise them. Employers should have to engage proactively and positively with the chosen representatives of the workers. In return, employers are looking for a guarantee that the people they are speaking to are speaking for a majority of their workforce, and not only for a small, vocal minority.
Q29 Antonia Bance: You have spoken about the importance of reasonable behaviour on the part of employers. We have just spent 45 minutes talking about the unreasonable behaviour of Amazon at Coventry BHX4 warehouse. Do you think its behaviour was reasonable?
Matthew Percival: I cannot speak to the conduct of Amazon—I know you have them later this afternoon. The one thing I would say for now is that in other examples when I have spoken to employers, often the picture they describe to me will be a very different version of the same event from the one that a trade union would tell the media. It is important that they are given an opportunity to tell their side of the story, rather than having me weighing in without any facts to say what I would think of them.
Q30 Charlie Maynard: Your comment about reasonableness on both sides strikes a chord. Has the CBI already published amendments that it would like to see in the Bill? If not, is it planning to?
Matthew Percival: I would be happy to share—we have made a submission to the Bill Committee that included proposed amendments. I know we are in the hands of the Committee, and it is for them to choose when they are publishing their evidence. I have not checked whether they have published ours or not yet, but we would be happy to share proposals and ideas.
What we have not yet sought to do is stick a percentage on it or say, “Exactly the right percentage is this, that or the other.” That is a discussion about the right balance to be struck. What we are hoping to achieve is a fuller discussion about the principles that underpin our framework of industrial relations, and how we will ensure that a voice that workers choose is put to the fore.
Q31 Chair: You said a moment ago that you saw positive things and things that needed to be changed. Briefly, what are the good things and what are the things that need to change, in the CBI’s view?
Matthew Percival: I will give one example of the positives. We want a democratic discussion within workplaces and a genuine worker voice that you are encouraged to participate in. At the moment, we have a system that discourages you from participating in the decision whether there will be industrial action. Before the previous Government introduced its Trade Union Act, we proposed a support threshold for industrial action. The Government’s manifestation at the time was a turnout threshold. The challenge is that that says, “If you don’t want a strike to happen, don’t vote,” because then the barrier to the strike happening is higher. A support threshold says, “If you actively don’t want this to happen, vote no, and that will make it more likely that it doesn’t happen.” At the moment, voting no potentially makes it more likely that something will happen, because that is the quirk of focusing on turnout rather than how many people really support it. A fix there would be positive for encouraging that kind of democratic discussion and decisions being taken within workplaces.
At the other end, I have already mentioned the 40% support threshold, but we have some real concerns that there could be increased tensions in the industrial relations in workplaces. If employers feel that there is a risk that moving to a simple majority means that recognition could go against the wishes of the majority of the workforce, they will need to put more effort into ensuring that their workers are not upset by an outcome and that they do not say, “I didn’t realise this was happening—what’s going on?” They will therefore be more actively saying, “Make sure you participate in this to get the outcome that you want.” I imagine that even if that information is relatively neutrally put, people who vote as a result of seeing the employer’s reminder to vote, rather than the trade union’s, will disproportionately be people voting no, because those voting yes would already be aware of what the trade union was seeking. That will cause accusations of anti-union organising in workplaces where employers are simply trying to ensure that the whole workforce is engaged in a decision. There is no protection for a minimum level of support before it happens any more.
Q32 Gregor Poynton: Mr Willmott, your organisation has previously called for greater public investment into the infrastructure that supports engagement between employees, other stakeholders and employers. What should that look like? What does our infrastructure look like compared with other comparable economies?
Ben Willmott: One point we try to make is that a lot of changes to legislation are being proposed, but changing working practices will not be achieved just through legislation. We have suggested that there needs to be a more coherent vision around the infrastructure. What are the key institutions and how should they be resourced to improve and support a reset in employment relations?
A key will be, at the foundation level, a functioning labour market enforcement system. That needs to go beyond just the proposals for a fair work agency, which of course is really important. We also need to look at the Health and Safety Executive and the Equality and Human Rights Commission. We know that by international standards we are under-resourced in terms of the number of inspectors for our enforcement bodies. We also need to see measures to improve the efficiency of our overburdened tribunal system. Crucially, we need to see more resources for ACAS to help improve its ability to advise and support SMEs, particularly micro and small firms, to comply and to improve their practices.
We have also suggested that we need some sort of collective employment relations code of practice that can act as an anchor point for the Government’s new principles for a modern industrial relations framework. It would set out the key working practices and standards of behaviour expected both on the side of employers and managers and on the side of trade unions and union representatives on the ground, because that is where I think we will get conflict.
We know that this is one of the challenges for us as a professional institute for HR and development. Those core collective employment relations skills have atrophied over the last 20 or so years. The shift to more individual forms of employment relations means that a lot of our members will have to think more closely about partnership working with trade unions and trying to agree voluntary access for unions in a way that is done with harmony.
We absolutely have a role to improve those collective employment relations skills. At the same time, there is a need for the unions to look at their own capability to ensure that their representatives on the ground are entering engagements with employers on a positive footing and looking to foster partnership.
We have talked about the need for more support for the CAC. We absolutely need that as well, but there is a danger that without that broader vision and support, we will end up with more conflict rather than having supportive and productive partnership working between trade unions and employers on the ground in workplaces across Britain.
Q33 Chair: That is a really helpful survey, Mr Willmott. Have you a sense of how much extra investment it would take to get those different components up to the level we need to get them to?
Ben Willmott: We have suggested that ACAS’s budget should be doubled from about £60 million to about £120 million a year. I would suggest that to improve the labour market enforcement system in a meaningful way, you are probably looking at £300 million a year.
Chair: Extra?
Ben Willmott: Extra. There needs to be a recognition that there will have to be some investment in this area; we cannot just rely on legislative changes to achieve the reset that we need. When we have talked to the Government in the run-up to the Employment Rights Bill and in engagement with key stakeholders, we have tried to make some of those points.
Q34 Chair: Can you see that budget increase at the moment in Government spending plans?
Ben Willmott: No, but the other point that we have made is that there are areas of Government spending that seem to get a bit more of a free pass than others. If you look at the amount that we spend on R&D tax incentives, you will see that we invest more in R&D tax incentives than any other developed economy. Of course we need to invest in R&D—I am not saying that we should not—but look at areas of investment such as the patent box. Margaret Hodge has highlighted it consistently as a dead weight, and there have been various independent evaluations of it. At £1.5 billion a year, it is broadly a dead weight. It goes to larger organisations, and there is no evidence that it provides a public benefit or good. We have to look at it.
We have made the broader point that we need to rebalance our innovation strategy away from just looking at the cutting-edge frontier firms. Rachel Reeves has made the same point—
Chair: I will close off that road at the moment, just because the point is extremely well made.
Ben Willmott: The point that I was making is that we need to move to innovation adoption. That is one of our weaknesses. We have poor adoption of good practice in management and technology, so this should be part of the debate around the industrial strategy as well.
Chair: It is a really good point.
Q35 Gregor Poynton: Assuming that we were then to go forward with the framework and infrastructure that you describe, what do you see as the benefit to the UK economy and as a driver for growth?
Ben Willmott: We know that employee voice is really important, particularly in organisational change and transition. We know that we are going to need to see improvements in technology adoption, which requires significant changes to how people are managed, including job design, training and development, organisational development, change management and employee voice.
We have also suggested with Prospect union that we need to improve sector-level partnership working between employers and trade unions to support improvements in collective employment relations, job quality and technology adoption. Our view is that you need broader perspective, infrastructure and vision around how we are going to translate these changes in legislation into a broader push to improve the quality of workplace practices.
Q36 Mr Reynolds: Matthew, you will know that trade union membership has fallen significantly since 2000. That has now led to businesses saying that unions cannot fairly represent their workforce on things like pay and contractual relations. Do you think that the UK should look to change that relationship and increase that number? If so, what should we be looking at doing?
Matthew Percival: I think the Government should be entirely agnostic to the question, because my principle is that workers should choose what representation they want. It is a really important principle that the UK has signed up to—freedom of association. Freedom of association means removing unreasonable barriers to the ability to organise for workers who want to be organised; it also means the ability to choose not to be a trade union member if you do not want to be.
The question is whether an individual feels that it is worth it for them, on a cost-benefit analysis or for any other reason that they may choose to want to be a trade union member. There is a range: in some industries people will be thinking about being a member in case they might be unreasonably treated because of a particular policy, in some places it might be about wanting bargaining, and in other places it might be more to do with their personal politics rather than their experience of their employer at work. Any of those reasons are fine for an individual to choose.
The employer’s question, in response to what the workers choose on an individual basis, is what the point is at which a sufficient proportion of the workforce has expressed an interest in having a collective relationship with them through a trade union that justifies an employer saying, “We will now engage.” That already is not a majority; it is 40%. We are not standing here saying, “If there is not an absolute majority of the total workforce who want this, there is no point in having a conversation.” There are also workplaces with multiple trade unions, and you cannot have multiple trade unions that both have more than 50% of the workforce as their members. There is still a productive conversation to be had, because you know that you are speaking to a sizeable proportion of your workforce.
I am not speaking about absolute majorities here, but I think the question that an employer is asking is, “How do I know when this is a collective enough view and is representative of my workforce such that there is benefit for me in, frankly, shortcutting some of my conversations? If I can have a collective conversation, sometimes it can be helpful.”
I have spoken to some of my members before who have said that one of their industrial relations problems is that they have quite a good and constructive with their trade union, but the membership is dwindling within the workforce, which starts to challenge the legitimacy of the relationship a little bit. I have even seen employers who are worried that the union membership is falling within their workforce, because it gives them another headache in having to deal with the change.
The important principle is not whether Government think that workers should be trade union members, but whether workers think that they want to be trade union members. The employer should not be taking a controlling approach on the individual, and neither should the Government.
Q37 Mr Reynolds: Do you think that the new Government are in a very different space from the previous Government on this issue? Do you think today we are in the right place, with a balance between individual employees deciding whether they want to be a member and having the freedom to choose individually?
Matthew Percival: Our response to the Government’s consultation on the future industrial relations framework warns that we feel that that is not something that is being considered in the current Bill. As I said earlier, our concern is that this Bill is an answer to the question, “What happens if an employer is minded to behave unreasonably with its workforce and the trade union?” It has not sufficiently considered the question, “What happens if a trade union behaves unreasonably in the relationship with the employer?” I am not saying that I think the majority are doing so or will do so, but it is possible.
The risk is that you do not build a lasting framework, so you have something that creates the sorts of examples that can become very discredited because they are obviously a bit silly—in the same way that current examples of extreme employer practice become lightning rods for debates that say, “Something needs to change here.” If you want to build a lasting framework, you need to better consider the balance on all sides. We have not had the time and space to get into that with the Bill so far. A lot of the scrutiny has focused on things like probation, guaranteed hours and those sorts of provisions, where there is good evidence of a good conversation with Government. They are starting to respond to those questions.
The risk is that we have not had a thorough enough conversation. That actually involves some negotiation and, dare I say it, social dialogue, in a context where we are talking about the future IR relationship. It involves saying, “How do we make sure we strike the right balance here?” Preferably we would end up with something such that trade unions and employers both come out at the end saying, “We think this is a fair settlement that will last for the future,” rather than risking creating aspects of this Bill that look a bit to employers like the Trade Union Act looked to the trade unions: “Let’s repeal it at the first available opportunity, because it is not a balanced settlement.” Let’s try to achieve something with the moment that we have and build something we can get more of a consensus behind.
Q38 Chair: What sort of provisions would that take you to? If we began considering the kinds of gap that you think are in the Bill, what kind of provisions would you speculate might be needed?
Matthew Percival: I have already spoken about recognition, so I will not talk about the recognition aspect.
Chair: We will come back to recognition.
Matthew Percival: As for other aspects, I have mentioned the importance in our view of there being a support threshold underpinning the industrial action ballots. I think it was a welcome addition by the previous Government when they introduced flexibility into the ballot expiry provision so that you could suspend the expiry of the ballot in circumstances where the employer and trade union were negotiating a resolution to the dispute and the imminency of the expiry of the ballot was a potential hurdle to resolving it. You do not want people to feel that they have to use their chance to be on strike now, when you are right in the middle of a sensitive moment of the negotiations. We feel that that is an adequate protection.
Q39 Chair: You were inviting us to follow you in a line of argument around trade unions behaving badly and misusing the legislation; I think that that is the argument that you were rehearsing. What kind of provisions would you argue are needed to guard against that risk?
Matthew Percival: One measure is around recognition; one is around support for industrial action. Perhaps another area would be the notice periods for industrial action: a number of employers in touch with us have a concern about reducing that to seven days from 14.
On the ballot expiry point that I was talking about, I would not want it to be the norm that disputes take 12 months to be resolved. I think disputes should be able to progress and evolve significantly, such that it is not unreasonable to think that you would be testing workers’ view on that ongoing dispute more regularly than only one a year. Those are the sorts of provisions.
But legislation does not fix everything. I certainly agree with Ben on the broader point about the atrophy in skillsets; that is something that needs to be considered on all sides. On the non-legislative side, you see a large variance in the behaviours of trade unions towards employers, just as you see a large variance in the behaviours of employers towards trade unions. That cannot be fixed with legislation, but there is a convening opportunity for Government—not in the legislative sense, because you cannot legislate for that stuff, but about what “reasonable and good” looks like, in their view, acknowledging that both sides can be unreasonable at times.
A former chair of ACAS once said at an event for our members, “Ultimately, employers get the trade unions they deserve, and trade unions get the employer they deserve.” The question is: how does this IR reset become an opportunity to try to level up the reasonableness on all sides so that, whoever has erred on one side or the other in the past, we manage to bring parties back together?
Q40 Charlie Maynard: Ben, looking at workers’ awareness of rights at work, are employers equipped to try to help their workforce understand their rights, powers and entitlements under the law?
Ben Willmott: We have some data around employers’ and managers’ awareness of employment rights. In a survey of about 2,000 employers, just under a third said that they thought their manager’s awareness of employment rights was either poor or fair, and about half said that it was good or very good. Small employers were more likely to say that their managers did not have good awareness of employment rights. It is critical that managers understand employment rights, because they are the ones who will be really applying them. Workers need that as well, of course, but I suppose I am looking at this from our members’ perspective.
The other issue that we have quite a lot of insight on is around the awareness that micro and small firms have of employment rights. We have run a number of HR support pilots in different parts of the UK since 2017, working with local authorities, chambers of commerce and our CIPD self-employed HR consultant members to provide the support. Out of the free HR support to small firms, we found that the level of HR capability and understanding around employment legislation is very low among these micro and small firms. Many of them manage people in a very informal way. Quite often, they will not have written employment contracts or terms and conditions of employment, so there is a real challenge around accidental non-compliance.
We have been making the case for publicly funded business support services to have a much stronger focus around HR and people management capability support. We know that that is an area of weakness—an Achilles heel—because your average owner-manager in a micro or small firm will not have access to professional HR support. Their own knowledge is likely to be limited or fairly ad hoc, and we know that that will be a real challenge as the measures of the Employment Rights Bill are introduced. That is a real area of focus that needs to be thought about, and ACAS can obviously play a key role there as well.
Q41 Charlie Maynard: Is there anything else that you would like to cover about how to drive cultural change in the area or get smaller enterprises up to speed on these things, or have you already done that?
Ben Willmott: What we know is that business support of this nature needs to be highly accessible and bespoke. The provision of a guidance document or a tool on the internet is not typically sufficient for an owner-manager; they basically need to talk to someone who can give them that contextualised understanding of the area that they need to look at most urgently from the people side of their business. Guidance is obviously really important, but at the point of need, for those businesses that need it, there is a need for the ability to talk to either an ACAS adviser or a professionally qualified HR consultant who can provide that level of support and expertise.
Q42 Antonia Bance: I have appreciated the expression from both of you of the need for reasonableness on all sides. I particularly identify with the point you made about the atrophy, particularly of leadership and management skills, when it comes to strong industrial relations.
Over the last couple of years, I have listened to a number of debates in the House of Commons in which it was abundantly clear that very few people had ever managed in large organisations where they routinely dealt with worker representatives and trade unions.
I very much hope—I would appreciate any further details you have to share—to hear about the leadership role your organisations may play in ensuring that our biggest businesses, as well as our medium and small employers, are well equipped for a future in which trade unions have more rights and in which they need to spend time engaging with their workforce productively, to ensure that they get the absolute most out of them as we strive for that high-growth future that we all so very much want.
Ben Willmott: Certainly from a CIPD perspective, we are having a lot of internal discussions around the type of education and training we can provide to HR practitioners on collective employment relations skills. We will also look at our profession map to make sure that there is enough emphasis on the development of those skills, as the next generation of HR practitioners come into the workforce. It is something that we are really focusing on, and we will be talking to stakeholders such as ACAS, which has a really good model of providing joint training for employment relations and HR specialists and trade union representatives together.
That is when you often get the best insight: when you are getting different stakeholders to understand the different perspectives and you then try to bring them together to understand how they can work together more productively. We are very much looking at this, and we will be doing further work in this area to try to address that skills deficit.
Q43 Chair: I just want to pin down this question about thresholds, just so we have absolutely got it right. The Government are proposing between 2% and 10%, I think. You have not got a view about where it lands, but just let me know what you think, Matthew.
Matthew Percival: There are the three changes in thresholds: there is the removal of the simple majority, there is the 10% to 2%, and there is the removal of the 40%. The top priority for us is what determines the outcome of the ballot, rather than when a ballot is triggered, and therefore that is more important to us in hierarchy.
A number of our employers are concerned that if you move as low as 2%, it starts to get too low, and you may end up with ballots where a competing trade union meets the threshold. That then gives you a more confused picture, but that does not feel like a decision that the Government are locked into yet, because they have given themselves a power to consider it further.
Ben Willmott: I think the important point is that there should be genuine consultation to try to get the balance right in statutory recognition procedures so that they are not overly complex and preventing access, but are also supporting genuine workplace democracy. That is the key.
Let us have a proper consultation on the areas that Matthew has been talking about. Our members definitely have some concerns in that area, but, if we find the right balance, to Matthew’s earlier point, we want to find something sustainable that is going to last the test of time. It is really important to get those different views.
Matthew Percival: I think you would want to see the different policies when they all get pulled together and see what the cumulative impact is. There are questions around right to access, which have been discussed already today, changes around e-balloting, which will hopefully make it easier for people to be able to participate, and changes around a number of the barriers.
Think about the prominence of trade unions in the media. We have had years of higher levels of strikes and more media coverage around the activities of trade unions since the election and a much greater representation of trade unions within Parliament. With all these measures taken together, that is when we should think, “Right: what does this tell us about whether the low level of trade union membership at that point is either because the workers are not interested, often, or because there is some undue barrier that prevents the will of the workers from being exercised?” I am quite sceptical about the latter argument.
Chair: That is both constructive and helpful. Thank you very much indeed. We would welcome any written evidence that you want to supply to the Committee before our inquiry concludes.