Enterprise and Regulatory Reform Bill

ERR 41

Submission from British Chambers of Commerce

Summary of British Chambers of Commerce’s (BCC) position

The BCC welcomes the opportunity to submit evidence to the Enterprise and Regulatory Reform Bill Committee. The BCC supports the thrust of this Bill. BCC welcomes measures to legislate on the establishment of the Green Investment Bank and to make changes to the employment tribunal process. The BCC supports measures to reduce unnecessary legislative burdens on companies, however questions the degree to which the extension of the Primary Authority Scheme will reduce the regulatory burden on small and medium-sized businesses.

Part 1: Green Investment Bank

The bank will help unlock the huge potential of clean energy and create much needed employment. It should focus on areas that offer the best level of return, such as energy efficiency. For the Green Investment Bank to be effective, it is important that it is able to act independently of the Treasury and this requires it to be enshrined in law. BCC therefore welcomes the decision to legislate for the establishment of the bank in the Enterprise and Regulatory Reform Bill.

BCC acknowledges that there is an argument to be made for not allowing the bank to borrow from the financial markets until 2015. However, it is clear that the bank’s ability to meet its objectives will be limited until that point. The BCC would like to see its powers to borrow be brought forward.

The bank should have flexibility to change its lending priorities as the needs of the UK change. It is unclear if the legislation gives it this flexibility and the BCC would like this clarified by the government. The BCC agrees that among the bank’s priorities should be energy efficiency, the most cost effective climate change mitigation policy. The BCC would like clarification from the government on how the bank can help deliver the flagship energy efficiency scheme, the Green Deal, and especially how it will deliver for businesses. The BCC also like to measures to put in place to ensure that small and medium-sized businesses can benefit from the green investment bank.

Part 2: Employment

Employment tribunals: Employment tribunals are an undesirable way to resolve workplace disputes and cost employees and employers time, money and stress. ACAS Pre-Claim Conciliation (PCC) offers the opportunity for resolution with minimal formality allowing both parties swiftly to draw a line under the dispute. The current system distracts employers from their core economic activity, and adds considerably to the burden of employment legislation, therefore reducing job creation.

Introducing a mandatory process with the option for participants to opt-out will reduce the number of costly and time-consuming employment tribunals, as well as helping to clear the backlog in the tribunal system. In addition to increasing the chances of conciliation, this additional step also provides the opportunity for professional advice that may identify claims made with no legal basis which would otherwise have wasted the time of the tribunal, the employer and the employee.

Research by the Institute for Employment Studies (Pre-Claim Conciliation research paper 2009) shows that many PCC cases are resolved in a timely fashion to the mutual satisfaction of both parties. Of those employees who had settled their dispute, two-thirds said that this settlement would have been very unlikely without ACAS - thus clearly showing that PCC has successfully reduced the number of co stly and burdensome employment t ribunals. Users of the service typically had low awareness and understanding of the service prior to becoming involved , and so the best way to ensure that all those who could benefit from PCC are aware of it is to make it mandatory.

The IES study also shows that one of the major enabling factors to successful PCC is the investment of significant time on the part of helpline staff. Therefore, we expect that extra resources for ACAS to cope with this increased workload will be crucial to the success of this proposal. Reducing the number of cases that proceed to tribunal should also reduce the burden on tribunal offices allowing them to process the case administration including case notes and letters to each party more quickly. Ideally there should be a requirement for this to be done within a set period of time, though this is not included in the Bill.

According to BCC research, one in five businesses has been threatened with a tribunal in the last three years. Three-fifths of claims are settled due to cost and uncertainty (the average cost to defend is £8.5k; the average settlement is £5.4k). In 2010 the BCC recommended (Employment Law: Up to the Job?, BCC, March 2010 - attached ) that l ay members be removed from the t ribunal system, and that the money saved could be better used by supporting ACAS in working with claimants earlier in the process.

We are concerned about a clause in the Equality Act 2010 which gives new power s to make recommendations that the employer should take steps for the benefit of the employer's workforce generally "for the purpose of obviating or reducing the adverse effect of any matter to which the proceedings relate", separately from or as well as making recommendations for the benefit of the individual complain ant. The BCC does not believe that t ribunal judges, nor lay members, will really have the experience to make such broad recommendations about a respondent’s business.

However, in such cases where a recommendation is made, it should only be made in cases with a panel. We would encourage the Governme nt to use these changes to the t ribunal system as an opportunity to remove th is provision, which we believe t ribunals are ill-equipped to use.

Unfair Dismissal : The BCC welcomes the replacement of rounding-up with a mechanism that allows the Secretary of State to reduce the upper limit instead of always increasing it. Few claimants achieve the maximum award, but the upper limit contributes to employer fears of tribunals and encourages vexatious claims.

However the BCC is more concerned that the level of median awards in employment t ribunals for unfair dismissal has been rising at a much higher rate than inflation. The Government should focus urgently on why the median level has been rising, rather than concentrating on the top level, which very few claimants achieve. One option would be making more use of Pre sidential Directions to ensure t ribunal judges are offering appropriate levels of awards. Better use of the statement of loss would also help and we look forward to reading the results of Justice Underhill’s Fu ndamental Review of employment t ribunal procedures.

Power to employment tribunals to impose fi nancial penalties on employers : The BCC is very concerned about the propo sed financial penalties, and disagree s with the stated reasoning behind them. Financial penalties will not encourage compliance, just early financial settlements even where the case against them is weak. Penalties will not change the behaviour of employers who are already prepared to defend a claim and be faced with unlimited costs. The propo sal to fine employers who lose t ribunal claims is a fundamentally anti-growth measure that will have perverse consequences, and it should be removed from the Bill. If the proposal to introduce a claimant fee prior to bringing a claim to an employment tribunal goes ahead it would also make sense to fine non-compliant employers an automatic small administration fee, aligned with the proposed employee fee.

The Impact Assessment states "the policy aim is to deter non-compliance," but in this context penalties will not act to deter non-compliance, but actually act as a disincentive for employers to fight weak and spuri ous cases. Employers defending t ribunal claims already face a large bill for legal costs – 78% of employers require outside help defending a claim. This advice is very expensive for employers; In 2008, the mean amount paid for legal and professional fees was £8,000 for employers and the median amount was £2,500. However, discrimination cases are consistently more expensive in terms of legal costs. BIS evidence shows that these additional costs, combined with high compensation awards, encourag e businesses to settle outside t ribunals, rather than having any effect on compliance. Rather than fearing losing the claim, the main reasons employers sought to settle were to keep costs down (51 per cent) and because it was convenient to do so (25 per cent). The BCC believes that this penalty will force more employers down this route.

For those employers that do defend themselves, the situation is different, as by their nature, they were not discourage d from going to t ribunal by the aforementioned costs. If "the policy aim is to deter non-compliance," it is unlikely that an extra £5,000 would change employer behaviour, if they are already facing paying out uncapped compensation in a discrimination claim. Any system of disincentive entirely breaks down here and this effect is not just limited to discrimination cases. In April 2010 – March 2011, 26% of employment t ribunal cases won by a claimant for unfair dismissal were granted awards of over £10,000, with 10% being awarded over £20,000. Given the high legal costs these employers were also paying to fight the claim, the BCC does not believe that a £5,000 fine would encourage compliance. Instead it will just hurt well-meaning SMEs defending themselves against what they consider to be an unmeritorious claim.

However, we do accept that if an employee will have to lodge a fee to use the t ribunal system, then it is also fair for a losing employer to pay an analogous administration fee to the Treasury. We do not accept the use of employers, already facing substantial legal bills, to raise further revenue. The Impact Assessment states these fines will raise £5.5m per year but the amounts would be very uneven, depending on the case. For a small business facing an unfair dismissal claim that they believe is unmeritorious and is tempted to defend themselves, an average fine of £2,500 (according to the IA) could be enough to put them off fighting altogether and encourage them to settle the claim. This is not in the interests of justice, nor does it promote job creation and economic growth.

The BCC believes this proposal should be drastically scaled back, so that judges only automatically fine employers a small administration fee, aligned with the employee fee. A penalty will not encourage employment law compliance. It will however make it even less likely that businesses, particularly small businesses, will defend themselves against weak and groundless claims – and could result in a more risk-averse attitude to employing people altogether, particularly amongst SMEs.

Part 3: Reduction of Legislative Burdens

The Primary Authority Scheme (PAS) and inspection plans: The BCC welcomes the commitment to reduce regulatory burdens on business, and to ensure that the number of inspections businesses face is fair and proportionate. Firms value positive, constructive interaction with regulators, but not un-coordinated inspections and punitive enforcement. If these proposals remove red tape and lessen the amount of time businesses spend on compliance, they will be welcomed by companies. The BCC welcomes the extension of PAS as this should reduce regulatory burdens on businesses which are not currently eligible to take part in the PAS. However, the BCC believes that because of the size and nature of many of the BCC’s members, they will not take up this scheme. The BCC believes that this scheme will be of more benefit to businesses that are members of specific trade organisations relating to specific industries, as opposed to general business organisation such as the BCC.

Sunsetting policy: The BCC welcomes the provisions being made that will put the question of legal powers beyond doubt, simplifying implementation of the sunsetting policy, and removing the risk of legal challenge.

Heritage planning regulation ( Conservation area consent in England): The BCC welcomes any moves to improve the operation of the consent regime. The BCC has long called for the non-planning consent landscape to be simplified and all unnecessary consents to be scrapped.

Part 4: Directors’ remuneration

Businesses must be able to reward good performance. Conversely, there should be no rewards for poor performance. However, these responsibilities should be exercised by companies’ non-executive directors and remuneration committees, in the interests of shareholders. Shareholders themselves must also hold boards to account.

The BCC is not in favour of the government taking steps to either directly or indirectly regulate directors' pay, as this is a matter for self-regulation by the businesses themselves. However, the BCC has no objection to the proposed amendment requiring a binding shareholder vote on pay policy every three years provided that pay policy remains unchanged. But legislation on this issue must end here as further political intervention in company matters could have perverse consequences for investment, listings and headquartering decisions. The Government must also not move beyond the existing definition of quoted companies as defined in the 2006 Companies Act.

July 2012

Prepared 18th July 2012