Growth and Infrastructure Bill

Memorandum submitted by British Chamber of Commerce (GIB 72)

Part 1 and Part 2 : Promoting growth and facilitating provision of infrastructure and related matters ( 1-21)

BCC position:

We welcome the measures in the bill to speed up and simplify the planning system. The planning system has long been viewed as one of the main barriers to business growth. We conducted a major survey to seek the business view of the system in 2011. A total of 5,342 businesses responded. The survey found that the planning system had developed into an overly complex, costly and inconsistent process that discourages investment.

Since the survey was carried out there have been many positive developments that could improve the system for business. Specifically, the BCC supports of this Bill:

· Renegotiation of S106 agreements to unlock stalled developments;

· The opportunity for applicants to apply directly to the Secretary of State in areas where councils are designated;

· The opportunity for schemes of national importance to be dealt with directly by the Secretary of State where their progress is in the interest of local economies and national growth;

· The proposal to reduce the amount of information a local authority can require of an applicant (our surveys show that 46% of business applicants are asked for additional information that was not requested at the submission stage – and they identify this as a key barrier);

· The proposal that applicants be able to apply for stopping-up powers prior to the grant of full planning consent, which would significantly speed up the pace of enabling works and further development in many cases.

So we believe the government can go further than the measures in this Bill. We would have liked to have seen measures to extend the scope of permitted development rights. We also think  that the government should be bolder and drop its commitment to maintain the greenbelt in its current form. Some of the green belt is of little environmental value, and this bill presented an important opportunity to create a new power to de-designate selected greenbelt sites where there is an overriding economic case for development. Amendments that would enable for a more pro-growth approach to selected green belt sites would be welcomed by the business community in many affected cities.

Part 3: Economic measures

22 Postponement of compilation of rating lists (Business Rates Revaluation) to 2017

BCC Position:

We welcome the decision of the Valuation Office Agency to release its high-level assessment of rating movements as of January 2012, which gives us a better understanding of how many businesses would gain or lose following revaluation and the required changes to the multiplier to maintain fiscal neutrality. The assessment concludes that many more businesses would lose than would gain from a revaluation based on values for April 2013 – primarily because the fall in rateable values since April 2008  would require a 16% jump in the multiplier to maintain fiscal neutrality, affecting businesses adversely across the country – even in areas of the country that have seen precipitous falls in commercial rents since the peak of the market when rateable values were last calculated.

We would have preferred this assessment to be published earlier and so we continue to receive feedback from members on this proposal. Our members’ top concern here is how their rate bills would change in the year of a revaluation. But the rate bill for a business is the product of three things:

1. The rateable value of the property (this is the assessment by the Valuation Office Agency of the rent the property would command on the open market);

2. The Uniform Business Rate (aka ‘The Multiplier’); And

3. Any reliefs for which the company is eligible.

We would like to see further clarification on whether the transitional relief scheme that started in 2010 and is set to end in 2015 will be extended to cover the 2015-17 period.

The BCC will continue to synthesise feedback from businesses and will make further representations accordingly. However, at this stage, we believe that a full debate should be had on the differential impacts that the delay of revaluation may cause.

The Government has also missed an important opportunity to ease business costs in this bill. It should have used this opportunity to de-link business rates rises from the previous year’s September RPI inflation figure. The 2.6% rise businesses face in April 2013 comes after a 5.6% rise in 2012 and a 4.6% rise in 2011. So businesses are carrying the can for local funding at a time when council tax is frozen – a situation which cannot continue. Amendments are welcome to stop these unaffordable increases in the business rate.

23 Employee-Owners

BCC position:

In the short period of consultation we have not been able to identify significant support for this new employment status. Most employers with whom we have discussed the concept do not believe that it would be popular among potential new members of staff and that any attempt only to offer Employee Owner (EO) status to new starters would simply reduce the talent pool available to them. It seems most suitable for arrangements where senior skilled workers are brought together to form a start-up with share ownership as an incentive and limited risk to capital from employment disputes.

We believe that the EO status does offer advantages for employers over employee status, but will not work for businesses if it reduces the talent pool from which they can recruit. Some businesses have expressed concern about potential reputational damage as a result of potential falls in share value and EOs not fully understanding the difference in employment rights compared to employees.

BCC’s key points:

• We do not believe the length of the consultation period for this change to be proportionate to its potential impacts.

• The new status is most likely to be used by small businesses in the early stages of their formation. In particular, it may be attractive where a small number of highly skilled workers are brought together to form a start-up using equity as an incentive and with reduced risk to capital from employment tribunals. We do not expect take-up of the new status among employers to be high and we believe it will only be attractive to a small minority of workers.

• The reduced employment rights afforded to EOs will reduce the cost and risk of employment by removing the burden of formal procedures for dismissal and requests for flexible working. The absence of redundancy pay for these workers and longer notice periods for mothers returning to work will improve employers’ ability to plan their workforce and respond to changing business conditions.

• This greater flexibility and reduction in employment costs will have a positive effect on employers’ willingness to hire. Overall we expect this new employment status to improve labour market flexibility, though the scale of the effect will be proportionate to its take-up.

• Employers have concerns about the potential to discourage talent from wanting to work for them, the increased risk of discrimination claims and the cost of offering equity to employees.

• Employers must have full flexibility to introduce the type of share scheme, including restrictions, that best suits their business, whether such shares include dividends and voting rights or not. They must be able to buy back shares without prohibitive valuation costs.

• The Government will need to invest in raising awareness of the new employment status among businesses and the UK workforce. The BCC will undertake to inform members of accredited chambers about the new status. The new Gov.uk website should include comprehensive guidance for potential Employee Owners and their employers explaining the consequences of different employment statuses.

2012 has been marked by a second technical recession and low employer confidence with levels of unemployment that remain high but considerably lower than would usually be expected considering other economic indicators. The Bank of England acknowledges that the UK is unlikely to return to its pre-crisis growth path for some time. In this context the Government must continue its commitment to deregulation and work to increase business confidence to create additional private sector jobs.

Employers have welcomed the Government’s recent focus on resolving workplace disputes and attempts to improve employer confidence about managing their workforce. The extension of the qualifying period for unfair dismissal is perceived by employers as greatly reducing their risks when hiring. However, employment regulation including upcoming additional burdens such as flexible parental leave and right to request flexible working remains a significant barrier to employers when considering hiring additional staff.

Consultation period

The Government’s new consultation principles states that the governing principle should be proportionality [1] . Meaningful consultation about the introduction of a new employment status would require longer than the three weeks consultation period for this proposal.

Existing employment statuses

Employers are able to use different types of employment status and choose between them based on their needs and the costs associated with each type of worker. This has been demonstrated recently with the fall in use by employers of agency workers as a result of the Agency Workers Regulations. Many employers value the ability to plan projects with the greater levels of control of their workforce and continuity afforded by employee status.

Limited appeal

The new status is most likely to be used by small businesses in the early stages of their formation. In particular, it may be attractive where a small number of highly skilled workers are brought together to form a start-up using equity as an incentive and to limit risk to capital from employment tribunals. We do not expect take-up of the new status among employers to be high and we believe it will only be attractive to a small minority of workers.

When consulting Chamber members, employers have regularly expressed their concern that potential employees may decide not to apply for a role if forced to accept EO status. The success of the EO status will depend on the extent to which skilled workers are willing to trade the affected employment rights for equity.

The new status may also be used by some employers to recruit low skilled workers who are otherwise unlikely to find work, though we did not find any evidence of this among Chamber members.

Benefits to employers

The reduced employment rights afforded to EOs compared to employees translates to lower employment costs and reduced risk for employers. The real appeal for employers though will be to create a self-selecting pool of candidates who believe in the future growth of the business, are confident that they can contribute to that growth, and who want to benefit from it.

Removal of certain rights to claim unfair dismissal

The extension of the qualifying period from one to two years has greatly reduced the risk for employers when taking on new members of staff and most will only dismiss long-standing employees as a last resort. However, sometimes it is necessary and warranted to end the employment relationship, but employers can be tripped up by procedural errors, causing risk-averse firms to take on unnecessary cost and time to protect themselves. Malicious claims have to be defended and pose reputational risk to a business regardless of the strength of the case. The removal of certain rights to claim unfair dismissal beyond the two-year qualifying period will make EO status an attractive way to employ people.

Redundancy pay

Businesses are sometimes forced to cut staffing costs as a last resort. Not having to pay redundancy pay would save the business important cash at a difficult time.

Right to request flexible working

Employers already accept the vast majority of requests (97% according to a survey of our members in 2011) on business grounds and would do so regardless of whether they are made formally or informally. Not having to conform to a process will save time and reduce risk, without reducing the chances that a request will be granted.

Increase in notice for early return from maternity leave

Employers are not against maternity leave, but it is a fact that it causes disruption to a business. It is helpful for employers to receive the maximum warning about their employee’s plans to return to work so that they can plan appropriate cover. An employer is unlikely to make a valued member of staff wait the full 16 weeks if they can be accommodated sooner.

To be effective, the 16-week notice period must also apply to changes in planned parental leave. Otherwise a mother could give 16 weeks’ notice of her intention to return to work two weeks after giving birth then change her plans with just 8 weeks’ notice and finally give just 8 weeks’ notice of her actual planned date of return.

Disadvantages

Employers expressed concern that potential members of staff are unlikely to choose EO status over employee status unless offered equity of a value that would outweigh the benefits to the business, and that moral hazard might mean that those who choose EO status are those least likely to use employment rights, while those most likely to benefit from them would choose to be an employee.

The moral hazard argument means that in most situations for EO to work it would have to be compulsory for new members of staff, or for a particular category of the employer’s staff.

Although claims of unfair dismissal remain a concern for employers, most believe that the extension of the qualifying period from one to two years has reduced much of the risk that comes with taking on a new member of staff. However, they remain extremely fearful of discrimination claims. Just as we expect an increase in discrimination claims from April 2013 as a result of the extension to the qualifying period for unfair dismissals, we would expect the introduction of EO status to increase the chances of discrimination claims from EOs. Discrimination claims are notoriously difficult to defend, take more time at tribunal and pose greater reputational and financial risk than unfair dismissal claims. This reduces the benefit of the removal of certain rights to claim unfair dismissal, but there remains an overall deregulatory benefit.

The Government must offer clear guidance to employers about behaviour that may superficially be allowed under the EO status, but actually be deemed discriminatory. For example, some lawyers have suggested that the refusal to consider flexible working requests may be considered as indirect sex discrimination.

Employers were universally concerned that only offering EO status would mean limiting the pool of talent from which they were recruiting. For most employers this potential loss of talent outweighed the benefits of reduced employment costs.

Most small businesses believed that the bureaucracy and cost of offering shares to employees would put them off using the EO status. There was also concern that it might make it more difficult to attract future investment or to sell the business, and that existing shareholders might object.

Types of shares

Employers must have full flexibility to introduce the type of share scheme, including restrictions, that best suits their business. This may include shares which carry rights to dividends and voting rights or not. They must be able to buy back shares without prohibitive valuation costs.

Just as employers should have maximum flexibility in the restrictions that they can apply to the shares that they offer EOs, the Government must invest in resources that EOs can consult to understand consequences of different employment statuses.

The Government must also invest in raising awareness of the new employment status among businesses and the UK workforce. The BCC will undertake to inform members of accredited Chambers about the new status.

Conclusion

The Employee Owner status will offer reduced employment risk and costs to businesses that offer it. However, there are significant disadvantages which put most companies off using it. We believe that the success of the new status will depend on the number of employees willing to consider Employee Owner status for their next job. As a result, we do not expect many businesses to use the EO status.

December 2012


[1] ‘Timeframes for consultation should be proportionate and realistic to allow stakeholders sufficient time to provide a considered response’, http://www.cabinetoffice.gov.uk/sites/default/files/resources/Consultation-Principles.pdf

Prepared 10th December 2012