Written submission from Greene King (ERB0081)

GREENE KING SUBMISSION TO DEPARTMENT FOR BUSINESS & TRADE COMMITTEE

CALL FOR EVIDENCE ON MAKE WORK PAY: EMPLOYMENT RIGHTS BILL

Introduction

Greene King is the country’s leading integrated pub company and brewer, employing around 40,000 people with c.2,600 pubs, restaurants and hotels across England, Wales and Scotland, and two breweries in Bury St Edmunds in Suffolk and in Dunbar in East Lothian.

Out of our 2,600 sites, we operate c1,600 of those directly ourselves, but c1,000 are leased and tenanted businesses run as SMEs by individual and multiple operators. We therefore have experience of the impact of policies on both large managed pub companies and individual publicans running their own business.

We are supportive of the ambitions of the Plan to Make Work Pay, and believe that it proposes important interventions that will help raise standards for British workers across the board. Our aim is to work constructively with the Government as it overhauls employment law in the coming months.

At Greene King our success is built on our people. We are proud Greene King is recognised as a place to start and build a career and we were recognised as the Best Pub Employer at the Publican Awards in 2023.

Impact of 30 October Budget

In the months before the 2024 election, we were encouraged by Labour’s commitment to growth and to business and also its recognition of the importance of the pubs and brewing sector. We also want people to be happy in their jobs and to receive a fair wage which we believe can go hand-in-hand with the nation’s need to generate growth in the economy.

When the Employment Bill was published in September 2024 we identified a number of areas that would impact us and add some cost to our business, which we had broadly anticipated.

However, we were subsequently concerned by certain measures announced in the October Budget that will add tens of millions of pounds of cost to our business annually, in particular the reduction in the threshold for National Insurance Contributions from employers.

Some of the costs we were expecting, such as the anticipated increase in the National Living Wage, but other changes such as the reduction of the NICs threshold came as a shock and has left us with difficult choices around investment, prices and hiring.

This has a knock-on effect on the Employment Rights Bill, because many of the measures that are proposed do ultimately increase costs for businesses even further, for example removing the waiting period and lower earnings limit on Statutory Sick Pay, and the move to Guaranteed Hours. We therefore feel it is incumbent on us to illustrate as much as we can the real dilemmas and challenges pubs at the heart of communities are now facing.

We want to see the employment standards improved across the board to create a more level playing field for all, and remain supportive of many of the measures in the Bill.

However, there are areas that we foresee will add further significant costs and so seek to prevent any unintended consequences from policies that are well-intended when taken in isolation but when looked at in the round with further changes to pubs and brewers as a whole adds up to a cost of doing business crisis that is already hurting pubs and could mark a moment of lasting damage to the pubs industry.  

To provide some context, examples of upcoming cost increases for pubs and brewers through inflation, tax increases or additional regulation that are unconnected to the Employment Rights Bill include:

-          Increasing minimum wage by 16.3% for those aged 18-20 and 6.7% for those aged 21+

-          Reducing the NICs threshold from £9,100 to £5,000 for employers

-          Introduction of Extended Producer Responsibility fees for packaging producers

-          Business Rates revaluations in 2025 expecting to significantly increase valuations as turnover has increased to keep up with underlying cost inflation

-          Introduction of a Deposit Return Scheme in 2027

-          Ongoing investment to reach our target of Net Zero by 2040, and halve greenhouse gas emissions by 2030.

It is in this context that we highlight the following areas of the Employment Rights Bill that will add further costs for pubs. While the scope of the bill is vast, we are focusing our consultation response on a few of the most significant areas that are especially pertinent for pubs:

-          Right to guaranteed hours

-          Shifts: rights to reasonable notice and right to payment for cancelled, moved and curtailed shifts

-          Changes to Statutory Sick Pay

Right to guaranteed hours

Zero-hours contracts or their equivalents have been a staple of the hospitality sector for many years and provide a degree of flexibility that is popular with some of our teams.

Unfortunately, in some sectors it seems clear that these contracts have been ‘exploited’ by unscrupulous employers and we understand why the Government wants to address this.

Greene King is comfortable with government ambitions to ensure employees who want guaranteed hours can access them, and we were pleased to see that the proposals reference that those wishing to have a zero-hours contract because of the flexibility it offers can still benefit from this.

Last year we also undertook a guaranteed-hours trial at 47 of our managed pubs throughout the country to test our own systems’ capacity and gave people the option to choose between zero hours and guaranteed hours, the findings of which are set out below.

For background, our pub team members are classified as ‘team leaders’ (supervisors/management) or ‘team players’ (general staff). Team leaders typically have longer tenures, commonly between 2-5 years, whereas team players often work for 1-2 years or less than a year, consistent with industry trends.

We gave each member of staff the option of zero hours or agreeing a guaranteed-hours contract. To reach an agreement of number of hours guaranteed, we looked at the previous 12 months and 12 weeks and worked out an average from there, from which we offered 80% of those hours as guaranteed as a starting point for discussion, so the team member could then ask for more or less.

However, one learning from the trial was that even offering 80% of the average meant we became overcommitted on hours compared with quieter periods, so it led to a greater cost to the pubs as it did not account for lulls in trade.

Out of almost 1,000 contracts processed, roughly a quarter requested zero hours and three-quarters opted for guaranteed hours. We found guaranteed hours boosted our ability to employ workers, provided the hours did not negatively impact life outside work for the member of staff.

The trial indicates there are some clear benefits for the hospitality industry of introducing more guaranteed hours. However, we would urge the government to consider why the hospitality sector would struggle under a ‘one size fits all’ type policy on zero hours in some areas. These are:

-          12-week reference period and seasonal fluctuations: A 12-week contract basis can skew guaranteed hours, particularly if staff start during peak seasons like the lead-up to Christmas, resulting in extra costs during quieter periods like January. For example, in the past year we saw a drop of 15% in hours worked in January, compared with December, due to the corresponding fall in customer footfall.

-          For context, this equated to c329,000 fewer hours worked in January 2024 compared with December 2023. If you multiply this number by £12.21 (the current National Living Wage), it equates to just over £4m additional labour costs for hours that are not needed. This shows how guaranteeing hours in a seasonal industry can have a distorting effect on an employer’s wages bill and add significant cost to the business if not handled appropriately.

We believe that guaranteed hours should be based on periods longer than 12 weeks to reflect seasonal business variations. In our own trial we looked over the course of a year to account for seasonal fluctuations.

We support the position of UKHospitality, which is calling for a reference period of 26 weeks to help take account of seasonal work and give a better indication of guaranteed hours for our sector.

Without maintaining some degree of flexibility, the cost increases for pubs could be exorbitant and unsustainable both for large pub companies with managed pubs and also for smaller independent or tenanted pubs.

For the latter, it could make their business model unviable, if it is already running at a very tight margin and lead to a pub’s closure. For larger pub companies, they will have more capacity to absorb some cost increases, but this would have to be through measures such as hiring fewer team members, increasing prices and investing less in their pubs.

All of the above would have a negative impact on the communities those pubs are serving and also make it harder for those pubs to drive local growth and employment.

This is further backed up by the Government’s impact assessment[1], which noted the impacts on business overall were almost all negative, stating:

“Businesses will incur costs related to familiarisation and implementation as well as procedural costs of the policy. Alongside this, there is the potential loss of flexibility which may affect the viability of certain business models and incur higher workforce planning costs. As a result of improvements in worker welfare and incentives for better planning of work and shifts, there is potential for productivity improvements, which would drive benefits to firms. Similarly, some firms will already be operating in ways that comply with this legislation, e.g., avoiding zero and low-hours contracts. This will allow these firms to compete on a level playing field with firms that transfer excessive risk to their variable hour workers.”

We recognise the first half of this statement as consistent with the impact we foresee it having on pubs. We also do not disagree with the second half of the statement that talks about improvements for individuals – and this is backed up by our own trial where three-quarters of people opted for guaranteed hours. However, the point around creating a level playing field is less applicable to hospitality, in our view, when these contracts are used commonly throughout the hospitality industry.

Furthermore, what we feel is not sufficiently challenged in the impact assessment is the impact that having such a short reference period will have on seasonal industries such as pubs and wider hospitality businesses. As previously stated, the 26 weeks proposed by UKHospitality would help to reduce the risks for pubs highlighted already in this document.

We note that when the Regulatory Policy Committee[2] reviewed the impact assessments it also graded the zero-hours contracts guaranteed hours impact assessment as red for ‘identification of options’, stating:

“The individual IAs do not generally consider a ‘longlisting’ of options to achieve the objectives, while they appraise only the ‘do nothing’ and preferred policy option. The seven IAs rated not fit for purpose are generally ones where viable alternative options are most readily identifiable and amenable to proportionate assessment.”

In this case, we feel that further options could be considered, such as guaranteeing hours based from a longer reference period, so as not to disproportionately impact the viability of pubs and hospitality businesses.

Shifts: rights to reasonable notice and right to payment for cancelled, moved and curtailed shifts

Following on from the points made above, it is the unpredictability of the pubs industry that makes it very difficult to implement guaranteed hours in a way that does not ultimately add further costs for pubs.

Ultimately, we all want the same thing, which is for people to feel secure in their jobs but also for pubs not to be facing further cost pressures, brought about by having to pay out more on hours than is needed as they operate to increasingly tighter margins.

As an example, currently we give three weeks’ notice of our rotas to allow people to plan accordingly and try to give as much notice as possible. However, if in the intervening period there is significant period of bad weather – not an uncommon occurrence – this can drastically impact footfall to the pub as people choose to stay at home instead, leading to pubs adapting their rotas to protect margins. Similarly, if there is a sudden boom in footfall because of a period of unseasonably good weather, it brings more people out to the pub and so you see if more people can work at short notice to cope with demand.

By introducing a longer time limit on cancellation and notice of shift changes, this will impact pubs’ ability to manage their margins during periods of leaner trade. Ultimately this makes the pub less viable and potentially affects its long-term prospects. Another natural consequence is that pubs would seek to employ fewer people but have them working for more hours, limiting the ability of people looking for just a few hours a week to find employment.

We would therefore urge the Government to ensure any shift cancellation period keeps in mind the flexibility needed in sectors like hospitality that operate on tight margins and can experience large fluctuations in footfall week to week.

Changes to Statutory Sick Pay

We do not disagree with the changes to statutory sick pay – we want to provide stable, secure employment for our teams - but it does mean increased costs for employers, which will naturally have knock-on effects when taken in the round with all the other rising costs of doing business.

We anticipate this will lead to increased costs for us, as an employer of 40,000 people, many of whom work part-time and including some who may work in a pub as one of many jobs and so currently fall below the lower earnings limit.

We agree with the Government’s assertion that people should not be made worse off as a result of this policy change if they are unwell.

As an indicator of the cost impact, based on data collected for the four weeks prior to 22 November 2024, we recorded 18,944 sickness days. Out of that, there were 4,487 days where neither SSP nor company sick pay were paid.

Looking into that data further, we estimate that when the changes to SSP are implemented, if the rate was at 60%, which was the lowest rate the Government has stated would mean employees were not worse off compared with the previous system, it could add a cost in excess of £500,000 to our business per year, with the number significantly higher if the rate ends up being higher.

However, we also feel this is going to be an underestimate because at the moment an employee may not always notify if they are unable to take part in a shift because they are sick as there is no financial incentive to do so. However, under the changes proposed to guaranteed hours we will need to ensure sickness absence is recorded much more accurately by individuals as we will need this data to ensure we are meeting the guaranteed hours obligation. Therefore, the final costs will likely be higher than the numbers we have modelled.

We highlight this simply as a further example of how further costs are being added to pubs through these changes and would urge legislators to bear this cumulative cost in mind when looking at introducing further policies that have an additional cost to business.

Conclusion

As hopefully the above demonstrates, we are keen that an appropriate balance is reached between improvements across to the board to weed out bad practices and ensure fair treatment for all, but without adding many more costs that impacts pubs’ viability.

We believe the bulk of questions in the call for evidence are answered by the above, but of particular significance are the questions on impact to investment and employment rates, key contributors to overarching economic growth and productivity.

For guaranteed hours, our trial did indicate it could lead to improved retention, but it also highlighted the challenges of managing guaranteed hours in an industry that has relied on flexibility throughout its existence. This flexibility is further impacted by the changes to notice of shift cancellations.

While not part of the Employment Rights Bill, but rather the wider Plan to Make Work Pay, the increases to the National Living Wage do have an impact on the overall cost of doing business, as do the increased NICs contributions, which put further pressures on other aspects of the bill.

The intentions of the bill are good – and we are broadly in agreement – however our chief concern remains that it is being considered in isolation and that for many publicans across the UK they see an increasing wave of costs approaching them when the cost of doing business is already at an all-time high. The British Beer & Pub Association highlighted earlier this year that the average profit a pub makes on a pint is just 12p[3], which was calculated prior to the 30 October Budget and does not take into account the changes set out in this bill.