Government response
Labour market flexibility
1. Whilst the pace of regulatory change might
have created problems for some firms, the evidence for any serious
impact is limited and, at least to some extent, based on general
impressions about the nature of the economy and the regulatory
environment. We can find little hard evidence to support the assertion
that UK competitiveness is being threatened by overly stringent
employment regulation. Consequently, we found the obsession with
the growing burden of regulation slightly bemusing. Whilst we
acknowledge that there has been reregulation of the labour market
since the late 1990s, the UK still has a more lightly regulated
labour market than most comparable economies. In the Porter Report,
which reviewed UK competitiveness, excessive labour market regulation
was not cited as a concern, nor deregulation seen as a useful
strategy for improving the country's competitive position. (Paragraph
20) [2]
2. The debate about regulation versus flexibility
is in danger of losing sight of the important issues—namely
the pursuit of competitiveness and the need to ensure good, minimum
standards of protection for employees. Flexible labour markets
and regulation are good only in so far as they contribute to these
goals. We welcome the principles set by the Lisbon Strategy, combining
flexibility with social cohesion. The realisation of this strategy
might involve the introduction or the removal of specific regulations,
but this would need to be judged on an ad hoc basis. But it should
be reiterated that the main challenges that the UK economy faces
are not exclusively matters of regulation or deregulation, but
in areas that we have addressed in several Reports, including
skills and training, R&D and technology transfer, the supply
of capital for investment, and narrowing the productivity gap
with our competitors. (Paragraph 21)
3. The Government's emphasis on regulation as
a last resort, only to be used where the required goals cannot
be achieved through other means, is significant and it is a position
that we support (Paragraph 23)
The Government welcomes the Committee's comments.
Growth and jobs are essential for our prosperity and for social
justice. Jobs remain the cornerstone of social cohesion and prosperity.
And business needs labour markets that are adaptable to enable
companies to adjust to change and maintain the competitiveness
that enables growth and job creation.
In the UK, we have shown it is possible to regulate
in an intelligent way that supports rather than hinders job creation.
The Hampton and Arculus reports, published alongside the budgets
set out our core "Better Regulation" principles, including
risk-based enforcement and proper consultation with stakeholders.
We now need to apply these principles at EU level, by legislating
only when it is clearly demonstrated that this is the appropriate
way to proceed. And we need to ensure our transposition of EU
rules does not impose any additional burdens on business.
With this approach we have achieved the longest period
of unbroken economic growth in our history and since 1997 an increase
of just over 2 million people in employment.
It is because we can see the success of this approach
that we strongly support the renewed focus on jobs and growth
in Europe, where the European Council has given new impetus to
the Lisbon agenda for economic reform. 60% of our trade is with
our European partners and therefore our continuing growth and
prosperity and indeed our ability to compete in an increasingly
competitive global economy is strongly influenced by the economic
success of our European partners. In parallel we are working closely
with other member states on promoting the Better EU Regulation
agenda and there is strong EU political support for vigorous better
regulation programme.
The National Minimum Wage ('NMW')
4. The Committee is not in a position to make
recommendations on the appropriate rate for the NMW. We do, however,
acknowledge the widespread praise for the work of the Low Pay
Commission ('LPC'). It seems that it has managed to maintain a
broad consensus on a contentious subject to date, and the difficulty
of setting the NMW at a rate that is, at once, affordable to business
and fair to workers, especially given the wide regional variations
in the cost of living that exist, should not be underestimated.
The LPC has, by necessity, adopted a fairly cautious and experimental
approach to NMW rates, setting them low initially, and then increasing
them on the basis of experience. Given the relatively recent introduction
of the NMW, it seems too soon to establish a formula dictating
future rises, and we believe the LPC should continue to exercise
the discretionary approach that, it would appear, has worked so
successfully until now. (Paragraph 32)
5. Whilst we are concerned that the lower rate
might have seen a few employers reducing pay for 18 and 19 year
olds, we are mindful that youth employment is an area that can
be damaged by regulation and so we endorse the cautious approach
of the LPC to date. Given this, it does not seem sensible, at
present to abolish the lower rate for 18 to 21 year olds in one
step, though we do note that this lower rate has risen faster
than the full rate and it may be that, in time, the convergence
is such that the lower rate can be abandoned. (Paragraph 33)
6. We welcome the extension of the NMW principle
to 16 and 17 year olds. We can see no reason why all those entitled
to work should not be protected by a minimum wage limit. But again,
whilst the rate is low, we are mindful of the need for caution
in order to maintain employment. Experience would suggest that
this rate will be increased relatively rapidly. We are not concerned
that guaranteeing a certain level of pay to younger workers will
act as an incentive to abandon education or training early. The
rates have been set at a level below that already being paid to
many school-leavers. The NMW will ensure a moderate rate of pay
for the very lowest paid and, as such, cannot really be seen as
a very tempting alternative to continuing education. (Paragraph
34)
The Government notes the conclusions of the Committee.
Enforcement of the NMW
7. The companies who are ignoring the NMW, inadvertently
or otherwise, are unlikely to be unionised or members of trade
associations, and consequently are difficult to detect. There
is a clear danger in relying on employees, who may not know they
are being exploited or who may fear for their jobs, to report
breaches of NMW regulations. Consequently, we are pleased to see
that the enforcement unit established in the Inland Revenue to
ensure NMW compliance takes a proactive approach. It runs a helpline,
investigates complaints, including anonymous complaints, and conducts
surprise investigations at companies' premises. For example, 60
percent of the investigations conducted are based on its own analysis
and 'risk assessment' based on tax returns. It would seem a model
that might be extended beyond enforcement of the NMW to other
areas of regulation. (Paragraph 36)
We welcome the Committee's comments on enforcement
of the NMW and note the suggestion that this model of enforcement
might suit other areas of regulation. We are committed to ensuring
that employees benefit from employment rights which are effectively
enforced. We are considering issues around effective enforcement
of regulation in the context of the recent report by Philip Hampton
on effective inspection and enforcement.
Homeworking
8. A full investigation of the condition of homeworkers
is beyond the scope of this inquiry. However, we recommend that
our successor Committee conduct a dedicated inquiry to establish
the extent to which homeworkers do indeed suffer from a systematic
non-compliance with regulations designed to ensure minimum standards.
We urge the Government to look more closely at the problem. (Paragraph
37)
The Government is keen to ensure all workers, including
homeworkers, have appropriate rights and protections. We have
recently introduced new legislation for fair piece rates for output
workers, including homeworkers, which came into force in October
last year which should make it easier for both employers and homeworkers
to understand their rights under the minimum wage. We worked
closely with the National Group on Homeworking (NGH) on raising
awareness through publicity.
Agency workers
9. The business organisations and the Government,
by focussing on the six week derogation period, are missing the
more important issue which is the scope of the Agency Workers
Directive. We fully support the principle that temporary agency
workers should, in most respects, enjoy the same working conditions
as the permanent staff. Whilst the agency worker is in place,
he or she should be entitled to the same hours and to have access
to the same facilities, for example, as directly employed colleagues.
This should be the case from the day that the assignment starts
and should not be subject to any derogation period whatsoever.
If the intention of the Directive is to ensure that agency workers
enjoy adequate conditions in their temporary posts, we can see
no reason why they should have to wait six weeks before enjoying
this 'privilege'. A 12 month derogation would make the Directive
almost meaningless given that only a very small minority of temporary
assignments last beyond 12 months. (Paragraph 50)
10. Matters such as pay, pensions, and training
are more difficult. Whilst not, in principle, against attempts
to ensure equivalent pay for temporary agency workers, we are
mindful of the difficulties of implementing this. There are clear
means that the user undertakings can employ to avoid equal pay
and it is not necessarily the case that temporary agency staff
will be able to do the same job to the same standards as those
they are covering for. The means by which wage levels are set
for agency workers also create difficulties for making proper
comparisons with the permanent staff. The agency charges the user
undertaking a fee which covers the wage of the agency worker and
a mark-up for overheads and profits. Furthermore, if, as maintained,
the key employment relationship is between the agency and the
agency worker, the responsibility for training or for pensions
falls to them rather than the user undertaking. Whilst a company
the size of Manpower is able to provide these for their staff,
it will certainly present problems to the smaller, independent
agencies. (Paragraph 51)
11. We were told that employers would not respond
to an increased cost for temps by substituting permanent employees.
Instead, whilst the need for a degree of flexibility would still
result in the use of temporary agency workers, there would be
a reduced demand. The danger, then, is rather than promoting permanent
employment, the employment prospects of some of the more peripheral
members of the labour market are simply undermined. (Paragraph
52)
12. We are, however, aware of clear abuses, where
agency workers are kept on long term, temporary contracts as employers
attempt to avoid making a proper commitment to them. We were told
that some of the large, financial institutions maintained large
pools of long term, temporary agency workers. The Higher Education
sector is another where, it seems, long term temporary contracts,
renewed annually, are common. We are genuinely concerned about
situations such as these and can see no reason why, if a post
has been filled by a temporary agency worker for 12 months, it
cannot then be considered permanent. (Paragraph 53)
In relation to the Agency Workers Directive, the
Government continues to support the underlying principles of the
Directive. We would wish to reach an agreement on the proposed
directive based on a text which reflects the concerns of all Member
States and indeed during the Dutch Presidency the UK and a number
of Member States unsuccessfully tried to find a way forward.
However, views remained and remain very polarised and there is
disagreement on more than one part of the Directive. For example,
on Article 4 (a requirement to review restrictions and prohibitions
on the use of agency worker), the Government supports the Commission
text which would require the removal of restrictions that cannot
be justified on eg health and anti-abuse grounds but others are
opposing this text.
The Government fully agree that agency work can act
as a stepping stone to employment. Around 40% of UK agency workers
find non-agency jobs within a year of starting agency work and
36% were "outsiders" (unemployed, starters or other
non-participants) before starting agency work.
The Government recognises there may be abuses of
the system, for example so called "permatemps"—where
agency workers are used for extensive periods as substitutes for
permanent employees. In the last year however, we have legislated
to restrict practices relating to the charging of transfer fees
which deterred some employers from employing temporary agency
workers on a permanent basis.
The Government believes that the private recruitment
sector should be appropriately and effectively regulated. That
is why we have legislation and an inspection body to set and enforce
minimum standards for the conduct of those in the sector and to
prevent potential abuses. The DTI's Inspectorate investigates
every relevant complaint it receives alleging a breach of the
legislation governing the conduct of employment agencies. The
Inspectorate also undertakes targeted spot checks.
The Working Time Directive ('WTD')
13. With the WTD only aiming to limit the working
week to an average of 48 hours, it would seem to us that there
is plenty of scope for particularly long hours to be reduced without
encountering the problems faced by countries with significantly
shorter working weeks. Consequently we are not convinced of the
necessity of maintaining the opt-out. All the business organisations
told us that they thought it unlikely individuals would be required
to work more than 48 hours a week for a prolonged period. We fully
understand that, at times, it will be necessary for employees
to put in very long working weeks: peak periods of demand, large
orders, or deadlines are just a few of the common examples where
this is likely. However the WTD has a 17-week reference period
over which the 48 hour average can be calculated. We consider
that a period of over four months should amply allow for such
contingencies. (Paragraph 63)
14. Whilst nobody has brought to our attention
examples where the 17-week reference period is inadequate, if
these are of sufficient number or scale, then an extension of
the reference period should be considered. The business organisations
all argued that, if the WTD opt-out were to be lost, they would
prefer a 52-week reference period—and, indeed, this is one
of the revisions to the Directive suggested by the European Commission.
Even so, the Government told us that they estimate that there
are 1.7 million people who are working in excess of 48 hours a
week over a year. What is not yet clear is who they are or why
they are working such long hours or even whether, for example,
they would even be covered by the WTD. (Paragraph 64)
15. Ultimately, though, we remain to be convinced
of the necessity of retaining the WTD opt-out. Whilst we have
heard arguments in favour of its retention, we cannot help but
agree with the CIPD who said that the opt-out has taken on "totemic
significance", and with the Minister for Employment Relations
when he told us that it has become a "cause célèbre"
and that there is "a greater attachment to its importance
than there needs to be". (Paragraph 65)
We cannot agree with the conclusions reached by the
Committee. Although businesses correctly identified that individuals
cannot, under the Working Time Directive, be required to work
more than 48 hours a week for a prolonged period, the fact remains
that many choose to do so. Some businesses rely on workers' willingness
to do this; for example, Business in Sport and Leisure (in their
letter of 18 June 2004 to the Trade and Industry Committee) estimated
that 200,000 workers in the sector regularly exceed 48 hours a
week, and said that "removal of the Opt Out would be severely
damaging to the leisure and hospitality sector".
Of the 1.7 million workers work in excess of 48 hours
a week over a year, two thirds of these are paid for the extra
hours. This means that they are unlikely to be working "unmeasured
time", and so probably fall within the scope of the Directive.
This also highlights one of the main reasons they give for working
long hours; they want to increase their income, and would be very
likely to lose income if their hours were reallocated to other
workers or hours were simply cut altogether.
It is true that for some businesses and individuals,
the freedom to opt out has acquired significance beyond its economic
impact. However, the impact is still important, as is the point
of principle on allowing workers to work longer hours provided
they freely choose to do so.
Flexible hours and parental leave
16. We are pleased to see that, to date, the parental
leave regulation has been so well received and appears to be being
embraced by employers. The principle behind the regulation is
clearly beneficial to both employers and employees but only if
implemented in a sensible way. It seems to have been introduced
in a way that allows employers the flexibility to embrace it without
detriment to their firms and without excessive bureaucracy. But
the parents of young children are not the only section of the
population with caring obligations. One in six people aged over
16 are caring for a sick, disabled, or elderly person, and the
burden falls disproportionately on women. With an ageing population,
this is a figure that will increase. Given this, we are pleased
that the Government is reviewing how the right to request flexible
working principle could be effectively extended to include all
those with caring responsibilities. (Paragraph 71)
We agree with the Select Committee's conclusion that
the flexible working legislation has been well received, and that
employers have been broadly supportive of requests. The current
law is targeted at those parents who face the greatest challenges
in balancing work and childcare responsibilities. It is designed
to be light touch and straightforward, enabling parents and employers
to arrive at a working pattern that suits them both. The DTI also
seeks to facilitate a culture where flexible working is seen as
the norm, by encouraging employers to follow best practice and
offer flexible working opportunities right across the workforce.
Building on the success of this approach, we are
now formally consulting on the case for extending the scope of
the right to request to carers of sick and disabled relatives,
and to parents of older children. The options are set out in the
consultation document, 'Work and Families: Choice and Flexibility'.
The closing date for responses to the consultation was 25 May
this year.
17. As for a general extension of flexible working,
there seems limited scope for public policy to effect this other
than by increasing awareness amongst employers of the potential
gains. For parents with young children one possibility is a form
of the existing right to request flexible working; but any regulation
would risk involving Government in the detail of the way in which
companies organise their work. Furthermore, there seems little
point in putting in place extra regulations when it is the attitudes
underlying them that is crucial. The Work Foundation cited an
example of an investment bank with exemplary paternity policies
which they claimed to be using to "weed out the losers".
Clearly such puerile machismo will undermine the best designed
policy, so any progress depends on improving awareness of the
benefits that can be gained. The FSB noted that the small business
sector already has a good record on flexible working and is able
to do so because of the relatively informal nature of the working
relationships. Overall, this is an area that is still developing
but has the potential to benefit all concerned. (Paragraph 73)
The law was designed to encourage constructive dialogue
between employers and employees and this has been critical to
its success so far. As survey and research evidence has shown,
employers and employees often do not use the law, even if it applies
to their circumstances, preferring more informal means to introduce
and manage flexible working.
The Government believes this demonstrates the positive
change in attitudes that has been taking place over the past few
years where increasing numbers of employers are seeing the benefits
of flexible working. For all employers, the DTI has gathered
together advice, case studies and other support and this is available
on the Achieving Best Practice pages of the DTI website.[3]
In the consultation document, 'Work and Families:
Choice and Flexibility', we specifically ask how we can build
on the existing support and guidance to help employers manage
flexible working requests.
18. With a stable or falling-age working population
and low rates of unemployment, the greatly increased participation
of women in the labour force has made a major contribution to
relieving labour shortages and restraining wage inflation. This
situation looks set to continue whatever the economic circumstances
because of the UK's demography. It is therefore in employers'
self-interest to motivate and retain experienced staff. Although
we recognise that a number of companies—especially SMEs—will
find it difficult to accommodate the proposed extensions to parental
leave, to some extent this should be off-set by the greatly enhanced
ability to plan afforded by the suggested requirement on mothers
to provide better notice of their date of return. (Paragraph 78)
The Government recognises it is crucial that we deliver
our commitments in ways that meet not only the needs of children
and families but also employers. We are therefore consulting
on a range of measures to support business. This includes reviewing
notice periods but also consideration of statutory payment mechanisms,
including the case for transferring payment of Statutory Maternity
Pay, Statutory Adoption Pay and Maternity Allowance from employers
to Inland Revenue.
Ministers and officials will continue to meet with
employers and their representative bodies and we look forward
to receiving employers' responses to the consultation. We also
welcome the support of the Work and Families HR Advisory Group
whose expertise and experience in HR and payroll will be invaluable
as we work through the design of the delivery mechanisms.
It is important to remember that our proposals build
on what is already available. Most employed mothers currently
have a right to 12 months' maternity leave and many businesses
implement family friendly policies that go beyond the statutory
minimum because they recognise the business sense in doing so.
Finally, the experience of the 2003 employment laws demonstrates
it is possible to reach a consensus between parents and employers
of all sizes.
2 All paragraphs in bold font are quotations from
the Committee's Seventh Report. Back
3
www.dti.gov.uk/bestpractice Back
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