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My hon. Friend also made the important point that, following investment, privately owned companies are by nature not as easily traded or sold as public companies. That means that private equity will almost invariably invest on a long-term view—say five years—rather than a short-term view. Private equity firms employ around 5,000 people in the UK in financial services, helping to generate £3.3 billion in fees for supporting organisations. That amounts to more than 7 per cent. of the total annual turnover of the UK financial services industry. It is therefore of the utmost importance that the sector is not sent packing overseas for no good reason. This country’s light-touch regulatory approach is recognised as key to attracting the industry to the UK, and legislative change must not compromise such an important part of the UK’s economy.
The hon. Member for Nottingham, East asked “Why not?” My first answer is that the Bill is technically unnecessary. That view is even supported by the European Commission, which concluded in June that there was no justification for extending TUPE to a change in ownership of shares. TUPE regulations were updated as recently as last year, as many Members have pointed out. However, the updates make no alterations to the well-established principle that TUPE need not apply to share sales. Notwithstanding what was said by both the hon. Member for Nottingham, East and the hon. Member for Stafford (Mr. Kidney), in a share sale the employer does not change, and therefore the employee’s terms and conditions of employment do not change either. Accordingly, the employee retains his or her existing employment rights, which are no more and no less than they would be if the sale had not taken place. I repeat: the employee is in no worse a position.
If job losses were incurred as part of the sale process, or after it—for example, if there were asset stripping—the employee would have the same rights as they had when the company was owned by the previous shareholder. Any dismissal would automatically be unfair unless the appropriate regulatory procedures were complied with. Let us be clear: existing legislation already dictates that an employer cannot unilaterally vary a contract of employment. Changes to individual terms and conditions such as pay, hours and holidays can be achieved only through agreement with the employee.
TUPE was enacted with the specific purpose of giving employees of a business who are transferred to a new business in a non-share sale similar rights to employees in a share sale. The hon. Member for Solihull (Lorely Burt) made that point, and it would be bizarre to reverse the process. The extension of TUPE to share sales is therefore unnecessary and irrational, and we do not see how that position has changed. An extension of TUPE would not add significant additional protection, but would lead to more complex and lengthy transactions, ultimately damaging the UK economy.
The Bill’s proposed new measures go significantly beyond the provisions in TUPE, and would be considerably more onerous and restrictive than existing legislation. I appreciate what the hon. Member for Nottingham, East said in that regard, but that is the
nature of his Bill. We believe that such provisions are a thinly disguised way for the trade unions to exert more influence on mergers and acquisitions transactions in the UK. That of course implies that the subject matter of the Bill really has nothing to do with private equity, as TUPE affects all business sales. I suspect that private equity has been inserted as the proposers believe that inserting a whipping boy is likely to increase interest in what actually is a pretty poor idea.
The hon. Member for Solihull set out the many reasons why the unions do not like private equity. To that extent, the Bill could be called a Trojan horse. Clause 3 goes beyond existing TUPE law by seeking to institutionalise the role of trade unions. At present, under TUPE any collective and recognition agreements will remain in force following a business transfer. Alongside that, any rules for varying, terminating, rescinding or altering matters after transfer also remain in force. However, the Bill seeks to make it impossible to make such amendments following a share transfer, as any changes for reasons related to the transfer would be automatically void unless economic, technical or organisational reasons could be proved. That, therefore, gives trade unions a shield on a share sale and creates the double standard where it is more favourable for buyers to buy a business than to buy shares in the company that holds the business.
Clause 4 provides that information be given to employee representatives such as trade unions before the parties agree that a share sale is to take place. It also gives them the right to commission an expert study, give a formal opinion and receive reasoned response prior to any share sale. Such an expectation is wholly unrealistic. It would result in a dramatic slowing of the transaction process, and potentially give trade unions the power to delay transfers almost indefinitely. The clause places a further onerous obligation on the acquirer in a share sale to disclose five-year business plans on the business it is acquiring.
Mr. Chope: I congratulate my hon. Friend on a very good demolition job. Will he illustrate his last point by reference to what is alleged to be happening in France, where the planned merger between GDF—Gaz de France—and SUEZ has been delayed by more than two years through the employee representative’s refusal to provide an opinion as required by French law? Would we in this country not be in exactly the same position if this Bill were enacted?
Mr. Djanogly: My hon. Friend gives a good example, to which I had intended to refer. He is right that there would be the same severe implications in this country. It was asked earlier what would happen if Northern Rock had been sold by way of a private share sale, to the Virgin bidder, for example. That did not happen, of course, but if this Bill had been enacted it would have significantly delayed the sale, leading to extra uncertainty—and certainly also to more worry for the staff concerned, rather than less. As my hon. Friend the Member for Shipley said earlier, in his usual forthright manner, we are not here to support the rights of workers whose work is going to end.
These obligations would be unworkable in a competitive, globalised marketplace that relies on rapid decision making. Moves to exercise such constraints on
the UK labour market would inevitably stifle the UK mergers and acquisitions industry, risk damaging London as a worldwide financial centre, and drive investment capital away from British shores into the hands of rival economies.
These measures are also unnecessary in the context of employee protection. Employment legislation already requires information and consultation with employee representatives, including trade unions, at least 30 days in advance if 20 or more job losses are envisaged.
The CBI has said that it does not support the Bill, which it believes would be damaging to private equity firms and, potentially, to many other businesses, compromising broader economic success and job creation. The hon. Member for Manchester, Central (Tony Lloyd), who has perhaps now gone to the Library to do his research, queried the CBI’s view that the provisions would create uncertainty. They would do so because the sale process would be impeded and delayed, thereby creating uncertainty over the outcome and more concern for staff. To reinforce the point made by my hon. Friend the Member for Shipley, let us not have any quibbling about the fact that the British Private Equity and Venture Capital Association—the BVCA—has strongly opposed the Bill.
Clause 5 allows for an injunction to be taken out to prevent a share sale if trade unions are not consulted. That does not exist even in TUPE, and it would be a disastrous measure for the UK’s mergers and acquisitions market. The hon. Member for Nottingham, East said that he wanted to strip out such extras, but I have to tell him that to do so would take him back to the existing law. That leads us to ask why we need the Bill. The timeline of any mergers and acquisitions deal would certainly be delayed while trade unions were elected and consulted, and much uncertainty would enter the process as a result.
Mr. Chope: Does my hon. Friend accept that the promoter of the Bill has now said that he does not wish the injunction provisions in the most recent draft of the Bill to apply? Does my hon. Friend take succour from that, in that it shows that the mood is changing on the Labour Benches and becoming more welcoming towards the whole principle of private equity?
Mr. Djanogly: I agree with my hon. Friend. It seems to me, having listened to the debate so far, that a Bill has been presented that was perhaps drafted by others, and that the amount of thought that went into it before it was presented was not as much as should have been the case. I regret that, because the implications of the provisions for British business are very significant, and because of the upset that the Bill has caused among business organisations, for what I see as very little benefit for employees’ and workers’ rights. For those reasons, I think that it would have been better if it had not been presented.
The scope of the Bill is uncertain. Although it claims to address issues of job insecurity following private equity takeovers, the fact that it leaves it to the Secretary of State to give a definition of “private equity” makes that an impossible task. Private equity is a highly problematic area to define, and—as my hon. Friend the Member for Christchurch (Mr. Chope)
pointed out—there is much dispute, even within the industry, on its parameters. For example, there is much debate on whether it includes venture capital or small innovation businesses, let alone business angels investing alone.
The hon. Member for Nottingham, East’s famous explanatory notes—which I have now had a look at; I thank him very much—confuse the issue even more. Paragraph 4 defines private equity organisations as
“companies whose shareholdings are not listed on a recognised stock exchange”.
I do not understand the sense of that, not only because there are listed private equity companies, but because it was this Government who put in place the tax measures to encourage people to invest in them. I shall be interested to hear the Minister talk his way round that one.
The uncertainty surrounding the definition of private equity leads to a very real danger that other UK companies will be caught by the Bill. If that happened, the ability of such companies to conduct business in the UK would be extremely inhibited. Again, businesses would be driven abroad, which could be extremely damaging to our economy. TUPE law is highly complex and frequently misunderstood. Extending it to share sales would create uncertainty that, in turn, would erode buyer confidence that profitability in a takeover target’s business could be restored and value derived from its investments.
The trade unions must be prevented from slowing up the UK’s mergers and acquisition transaction process and wrapping up our flexible labour market in red tape. Only two weeks ago, a huge union-led Labour Back-Bench rebellion in this place forced the Government to review their previous opposition to increased employment rights for temporary and agency workers. Since 1997, and having taken on the EU social chapter, the Government have introduced some 18 Acts and more than 280 statutory instruments that deal directly with employment regulations.
Despite business representatives increasingly speaking out against the growing burden of regulation and the resulting erosion of Britain’s competitive advantage, the process of reducing our competitive advantages is now actually accelerating. The impact has been to increase the complexity and burdens on employers while strengthening both trade union and employee rights. This Bill represents a further attempt by unions to push the Government—the Labour party now receives more than 70 per cent. of its money from the unions—into passing laws to make the UK’s labour market significantly less competitive. That is a further turn of the Warwick agreement ratchet and we had all better wake up to what is going on before that process kills innovation and job creation in our country.
This Bill is a further example of unnecessary meddling in business practices. It is technically unsuitable and economically misguided. If passed, it would be hugely burdensome for UK companies and would bring unlikely benefits to employees. Accordingly, we shall oppose the Bill today.
12.32 pm
Mr. Tom Clarke (Coatbridge, Chryston and Bellshill) (Lab):
When I read the Bill of my hon. Friend the Member for Nottingham, East (Mr. Heppell) last
night, I was not anticipating the sort of debate that we have just had. To be frank, I had not realised that Huntingdon and hyperbole went so well together. We have had gross overstatement from Conservative Members, compared with the innate decency in my hon. Friend’s presentation of his Bill in his excellent introductory speech. That decency is reflected in the measure that he has put before the House—a measure inviting a Second Reading.
We have heard much talk about parliamentary procedure, and I note that one hon. Member spoke for well over an hour, although he is no longer in his place. Yet “Erskine May” tells us that on Second Reading, we have the right to look at and examine a Bill and know that at later stages in Committee and on Report—
Mr. Clarke: I am not giving way; I did not intervene on anyone else and I am going to be brief. I am not going to talk out my hon. Friend’s Bill. I hope that if, for some reason, the Bill does not make its way through the normal parliamentary stages, there will be continuing discussion between the Minister, in whom I have enormous confidence, and people who understand what modern industry at this stage in the millennium is actually about, as opposed to the prejudices and ideology to which we have been subjected over the last couple of hours.
The Bill is, I believe, based on fair play—something that the British people recognise. Things have gone very badly wrong with industrial relations in Britain when that fair play does not exist, whether on one side of industry or the other. In my view, my hon. Friend the Member for Nottingham, East is trying to do the decent thing in industrial relations. He has looked into TUPE and recognised that, by and large, it is working well, but there are defects that can be put right. That seems to me a reasonable approach. My hon. Friend the Member for Stafford (Mr. Kidney) made the important point that TUPE is evolutionary and that there have been changes to it. Most of what I have heard about it has been positive, but when things have gone wrong, we have tried to correct them. Here we have a very decent little Bill, which would do exactly that in the case of private equity transactions.
I shall address some of the points that Opposition Members made before I turn to the positive aspects of the Bill, which will be recognised as such in my constituency. I was frankly astonished when the hon. Member for Shipley (Philip Davies) said that employment legislation was about giving people the opportunity to work. It was as though the quality of work did not matter and exploitation would be acceptable at this point in our industrial history. It was pretty much the old-fashioned idea of “hands wanted”, beyond which nothing much mattered. I thought that we had made progress since those days.
The hon. Gentleman’s argument was also advanced in the debates on the 2006 regulations, but there has been no evidence to justify it since. Indeed, the same argument was made against the proposal for the minimum wage. It was argued that all we should do was give people jobs—period. People said that our
proposals would mean the loss of jobs, but there is not a shred of evidence that that has happened. Those arguments are no more valid now, when used to oppose this excellent little Bill.
The hon. Member for Huntingdon (Mr. Djanogly), the Opposition spokesperson, endorsed the view of the hon. Member for Shipley. At this stage in our history, when we are seeking partnership and agreement between employers and employees, he made an outright attack on the trade union movement. I could hardly believe my ears. I thought that the modern Conservative party knew about the demands of the modern world and wanted to respond to them. That was not what we heard this morning, and it is not what my hon. Friend the Member for Nottingham, East was entitled to expect.
In this little measure, my hon. Friend proposes protection. It is not unreasonable to ask for protection for my constituents who have done shift work, year after year, in appalling conditions. They have contributed far more to companies that have been taken over than some of those involved in private equity have. I do not include all those involved, because I have no desire to attack private equity concerns in the way that the trade unions were attacked by the Opposition at the Dispatch Box. However, there have been abuses, of which I shall shortly give an example from my constituency.
When there are abuses of employment law, we in Parliament have a responsibility to put them right. Some Members give the impression that that is not our role. I have enormous respect for colleagues on both sides of the House, but people who are following the debate will say that we have not done a bad job of protecting our own employment rights, including our pensions. We must act when there is evidence that private equity concerns with a controlling interest have ignored representations from trade unions—or from employees’ representatives if there is no trade union, which I find unacceptable.
Jim Sheridan (Paisley and Renfrewshire, North) (Lab): Does my right hon. Friend agree that the fundamental effect of the Bill is to provide basic support and conditions for workers, some of whom have probably spent most of their lives building up companies until they are profitable, just for some spiv to come along and take their livelihood away from them?
Mr. Clarke:
My hon. Friend the Member for Paisley and Renfrewshire, North (Jim Sheridan) is absolutely right. I know what a contribution he has made to British industry—to working for partnerships between employers and employees. If the hon. Member for Huntingdon does not mind, I am happy to listen to what my hon. Friend has to say. He refers to real issues; there have been situations in which, following a transfer of equity, there were variations in contracts and dismissals, and collective agreements were dismissed and thrown out of the window. In some cases, the right to preservation of trade union recognition—something that I thought was accepted in all parts of the House—has been dismissed. In light of that, it seems perfectly reasonable for us to at least consider the
issues, and the Bill introduced by my hon. Friend the Member for Nottingham, East allows us to do so.
I make no apology for defending the rights of the work force. The Conservative spokesman, the hon. Member for Huntingdon, appeared to dismiss the fact that we have a responsibility, which I found incredible. Of course we have responsibilities to employers, large and small, but equally we have a responsibility to work forces who have contributed to the success of British industry and commerce that we have been discussing. Dismissals are very frequent in the situations that the Bill addresses.
I recall a local firm in my constituency called RB Tenant, which was headed by the local provost. When I became provost myself, and worked with my MP colleague, the late Jimmy Dempsey, there was never any problem about being invited in for a cup of tea and a chat about how the company was going. We could meet the unions and the work force. When the firm was taken over by Sheffield Forgemasters, by and large the same atmosphere prevailed. Sadly, when there was a much bigger takeover by an American concern, resulting in dismissals of the kind that my hon. Friend the Member for Nottingham, East mentioned, the Member of Parliament was not even allowed to pass the door. There were huge numbers of dismissals. I stood at the company gates while men who had given 20 or 30 years of service left in tears, having been thrown out. They were not told a word about the future of their pensions. Am I supposed to say that we ought not to do anything about such problems, and that if we do, we are upsetting the balance that has been established, with a lot of help from TUPE, in British industrial relations? I believe not.
The Bill is about genuine partnership, and about providing information and consulting after post-equity transfers. It is about talking with trade unions. Yesterday I had a brief conversation with Jack Dromey, and his description of the Bill, and his attitude to modern industrial relations, did not bear any relation to what I heard the hon. Member for Huntingdon say. To take up a point made by the Liberal Democrat spokesperson, the hon. Member for Solihull (Lorely Burt), it is perfectly reasonable to provide for the representation of employees in cases where trade unions do not exist. There is nothing particularly radical or challenging in that. That is the sort of measure that the Bill would introduce.
I would certainly welcome the Bill completing its various stages and emerging as an Act, but if that does not happen, my hon. Friend the Member for Nottingham, East should still feel that he has done an enormous service to industrial democracy and decency in this country, and I am sure that my hon. Friend the Minister will respond to the debate in that spirit.
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