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New Clause 1

Report on impact of Act

'Not later than one year from the date of coming into force of this Act, the Secretary of State shall prepare and publish a report on the impact of the Act, including in particular an assessment of:
(a) the total cost to employers of complying with the Act; and
(b) the total cost to public funds of the Act; and
(c) the distribution of costs and benefits arising from the Act between:
(i) employers;
(ii) employees of different descriptions; and
(iii) others.
and the Secretary of State shall, on each anniversary of the date of such publication, publish a revision of that report.'.—[Mr. Hammond.]

Brought up, and read the First time.

Mr. Hammond: I beg to move, That the clause be read a Second time.

Mr. Deputy Speaker (Sir Alan Haselhurst): With this it will be convenient to discuss the following: New clause 3—Assessment of costs to businesses

'(1) The Secretary of State shall, within one year of the coming into effect of this Act, prepare and publish an assessment of the average administrative costs per employee to businesses of complying with each of the requirements of this Act
(2) The Secretary of State shall, by Regulations, provide for the average administrative cost per employee as determined by the assessment under (1) above to be reimbursed to employers from public funds.'.

New clause 4—Assessment of resources of the Advisory, Conciliation and Arbitration Service

'( ) Before making any order under section 55(2) of this Act relating to Parts 2 and 3, the Secretary of State shall prepare and publish an assessment of the additional resources likely to be required by the Advisory, Conciliation and Arbitration Service as a consequence of the coming into force of Parts 2 and 3.'.

Mr. Hammond: New clause 1 would require the Secretary of State to make regular assessments of the Act's ongoing impact on employers and public funds.

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It also focuses attention on the distribution of costs and benefits between different groups, including between different groups of employees.

We believe that many of the Bill's provisions are positive, and we welcome them. However, it is disingenuous to pretend—or imply—that the measures do not have costs. Businesses will face costs in terms of potential job creation, given that the Bill will reduce flexibility in the labour force. In addition, the Bill will benefit some members of a work force, inevitably at the expense of others. It is therefore right and appropriate to require the Secretary of State to focus attention on such matters by preparing and publishing regular reports on the effect and outcome of the Bill in real life.

The Bill is wide ranging. The first part deals with paternity pay and leave and with adoption pay and leave, and extensions to rights of maternity leave. The second and third parts deal with tribunal reform and improving disciplinary and grievance procedures. The fourth part is a hotch-potch, dealing with everything else. I want to focus on the first part and clause 47, the new clause introduced by the Government in Committee that deals with the right to ask for flexible working terms for employees who have children below school age or, in certain specified circumstances, older children where a disability is involved. There is also a question in terms of cost impact relating to fixed-term work, but as we will debate that matter later, I shall avoid talking about it now.

We generally support the family friendly approach of the first part of the Bill, but, in most cases, we should see the benefits delivered not as benefits to employers—although when labour markets are tight, they may help employers recruit and retain staff—or as benefits to individual employees, but primarily as benefits to society as a whole.

It is unquestionable that anything we can do to strengthen families and support parents in the raising of children will have a significant benefit to society as a whole. We will have a better-educated and motivated work force, as well as a more stable social fabric. This is a social good from which we hope all of us will benefit in terms of less delinquency, better education, better- behaved children, less crime and less call on social services and social security to support damaged or collapsed families.

We support that, but it is important to recognise that this is a benefit to society, and that society should be prepared to pay for it. In some cases, the Bill appears to impose the costs of this benefit to society on one sector of society, namely businesses. Businesses have a finite capacity to absorb additional burdens. If they are damaged by the imposition of too great a burden, that will have a significant effect on society as a whole, as business becomes uncompetitive, the economy is unable to grow, jobs are not created and wealth does not expand.

In terms of the first part of the Bill, the direct costs will be met by society as a whole through the reimbursement by the Treasury of the costs of the direct payments for paternity and adoption leave and additional maternity leave, but the indirect costs on business will fall first on employers. Time off, sometimes for prolonged periods, will create problems, especially for small businesses. On Second Reading, we rehearsed the impact on a firm

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employing three or four employees which finds that perhaps one or two of those employees at a time may be absent on statutory leave. Perhaps one of those employees will have a key skill that is essential to keeping the business going. The consequences could be significant if that employee were absent.

In practice, I have always believed that, in a small firm, a deal will be done with such an employee. Effectively, the employer will end up bribing the employee not to exercise his statutory rights. That is probably a sub-optimal outcome, but one can envisage situations in which it will not be practical for a small business with three or four employees to continue operating for a prolonged period in the absence of a critical employee with a real skill.

The real cost to a small business of losing a key employee is not, as the regulatory impact assessment suggests, the administrative costs of replacing him with someone else, or sharing out his work to others; it is the opportunities forgone.

In the real world of small business, the order not pursued or the customer not served will represent the costs involved in lost output, lost profitability and, perhaps at the extreme margin, lost viability for that small business, so part 1 will involve intangible costs. Flexible working imposes further burdens, and the compliance requirements for smaller employers involved in ensuring that they do not infringe all the obligations placed on them under the Bill will impose yet more burdens on small business.

Labour Members are fed up with hearing about burdens on business, but burdens on business have a real impact on all of us. The burdens that will be imposed under the Bill cannot be seen in isolation; they have to be seen in the context of a stream of regulations coming from the Government. Last year alone, the Government imposed more new regulations than in any previous year on record. Since 1997, business has had to come to grips with a raft of legislation that stems from the Government's signing up to the social chapter. Business has had to deal with the minimum wage and the working time directive, as well as the Government's determination to treat business as an extension of the welfare state apparatus and the working families tax credit, and there are more administrative burdens to come as business delivers more and more of the Government's in-work welfare programme.

Business is reeling under that onslaught. The manufacturing sector in particular is under huge pressure, struggling with very tight economic conditions and facing an over-valued exchange rate, or perhaps one should say an under-valued euro, and swingeing tax increases, some of which—for example, the climate change levy—are targeted precisely at the sector, manufacturing industry, least able to cope with them. However, many of our competitors appear to have finally got the message; they are edging away from inflexibility in labour markets and moving back to embrace the benefits of more flexible labour markets. We are moving in the opposite direction, increasing the inflexibility in our labour markets in a way that threatens the competitiveness of British business. That needs to concern us all, not merely those who run and operate businesses.

Rob Marris: I apologise to the House for the fact that, when I intervened earlier, I failed to say that I am member of the Transport and General Workers Union, that I

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employ two people in my office and that my constituency Labour party received money from the TGWU before the election, as is recorded in the Register of Members' Interests.

Will the hon. Gentleman give the House three examples of regulations that he would get rid of? I am sure that he will be able to do so, because I asked that very question on Second Reading, approximately two months ago, so he has had plenty of time to prepare an answer. Which three regulations introduced by the Labour Government that he thinks are burdensome on business and not socially necessary should be got rid of?

Mr. Hammond: The hon. Gentleman's declaration of interest, which I did not quite catch, ranks as the verbal equivalent of small print, but I am sure that it will make interesting reading in Hansard tomorrow. I do not intend to get involved in going through all 4,600 regulations that the Government introduced last year, looking at their merits and demerits. The hon. Gentleman may be right to imply that I cannot recall all 4,600 of them off the top of my head.

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