Small Business, Enterprise and Employment Bill

The Committee consisted of the following Members:

Chairs: † Mr Graham Brady  , Martin Caton  , Nadine Dorries  , John Robertson 

† Colvile, Oliver (Plymouth, Sutton and Devonport) (Con) 

† Doughty, Stephen (Cardiff South and Penarth) (Lab/Co-op) 

† Esterson, Bill (Sefton Central) (Lab) 

Garnier, Mark (Wyre Forest) (Con) 

Gilbert, Stephen (St Austell and Newquay) (LD) 

† Gilmore, Sheila (Edinburgh East) (Lab) 

† Griffiths, Andrew (Burton) (Con) 

† Hancock, Matthew (Minister for Business and Enterprise)  

† Jenrick, Robert (Newark) (Con) 

McDonald, Andy (Middlesbrough) (Lab) 

† Morris, Anne Marie (Newton Abbot) (Con) 

† Murray, Ian (Edinburgh South) (Lab) 

† Murray, Sheryll (South East Cornwall) (Con) 

† Perkins, Toby (Chesterfield) (Lab) 

Simpson, David (Upper Bann) (DUP) 

† Stride, Mel (Central Devon) (Con) 

† Swinson, Jo (Parliamentary Under-Secretary of State for Business, Innovation and Skills)  

† White, Chris (Warwick and Leamington) (Con) 

† Wright, Mr Iain (Hartlepool) (Lab) 

Fergus Reid, Committee Clerk

† attended the Committee

Public Bill Committee 

Tuesday 4 November 2014  

(Afternoon)  

[Mr Graham Brady in the Chair] 

Small Business, Enterprise and Employment Bill

Clause 119 

Creditors not required to prove small debts: company insolvency 

Amendment proposed (this day): 223, in clause 119, page 95, line 21, leave out 

“an amount prescribed by the rules” 

and insert “£100”.—(Toby Perkins.)  

2 pm 

Question again proposed, That the amendment be made. 

The Chair:  I remind the Committee that with this we are discussing amendment 224, in clause 120, page 95, line 30, leave out 

“an amount prescribed by the rules” 

and insert “£100”. 

The Parliamentary Under-Secretary of State for Business, Innovation and Skills (Jo Swinson):  It is lovely to see you back in the Chair, Mr Brady. I hope that the hon. Member for Chesterfield is not feeling too lonely on his side of the Committee. [ Interruption. ] Here we go; the reinforcements have arrived, so he will not be on his own. 

Before lunch, we were discussing insolvency and the threshold for debt below which a formal application or claim would not need to be submitted. I think that there was agreement that there is clearly an amount below which it would not make sense to have a bureaucratic process or spend a lot of time assessing a claim, given that less money would be returned to the creditor than was spent processing the claim. The Opposition have suggested that the appropriate amount is £100. After our consultation and discussion with stakeholders, we have suggested that £1,000 might be appropriate. This debate is about that level. 

I am concerned that £100 is too low. Few debts in insolvency tend to be less than £100, so any savings from reducing bureaucracy would be extremely limited, meaning that creditors would lose out. However, perhaps the most significant point to make is that this is about not just the amount of debt but the likely rate of return. In insolvency, where 10% or 15% might be returned to creditors, a £100 debt might return only £10 or £15. If it were £1,000, only £100 or £150 might be returned. Processing the claim is likely to cost in the region of £30—or more, according to the evidence that we have heard—so even if the level were set at £1,000, the

difference between the money returned and the cost of processing would not be as large as the headline figures may suggest. That is why we are considering a £1,000 threshold. That said, we do not suggest that it be set in stone; it will obviously be subject to further consultation and discussion. I will discuss in a moment why I think it right not to set it in primary legislation, in any event. 

The hon. Member for Chesterfield raised a good point about unscrupulous businesses deciding that an insolvency is some sort of jamboree and sticking in an unsubstantiated note saying that they are owed £826—I think that was the figure that he used—or any amount up to £1,000, and just being paid that money, or their share of it. The first thing to note is that in most cases, some kind of paperwork will be kept by the business that has become insolvent, so there will not be no information about what is owed. The circumstances in which such fraudulent claims could be made are perhaps limited in any event. 

However, it is a fair point; we would not want the system to be open to abuse or fraud. The drafting of the clause enables the insolvency practitioner still to require a creditor to submit supporting evidence with a claim, even if it is below the prescribed level for small debt. Practitioners can do so when there is any doubt about the accuracy or validity of the records. If someone says, “I was owed £250 for this delivery of paper,” and somebody else says, “I was owed £300 for this particular supply,” and that tallies with the records kept by the company, there is no need for further paperwork. If a large number of speculative claims are submitted but the paperwork and record-keeping was pretty nonexistent, discretion is available to the official receiver or insolvency practitioner to ask for further supporting evidence. I hope that that provides some of the reassurance that the hon. Gentleman was after. 

It is important to know that creditors could still submit a claim if they wanted to. For example, some may be required to do so under the terms of a credit insurance policy. We want to take unnecessary cost out, but we have drafted the clause in such a way that it is not problematic for those who still need to submit a claim, and still gives that discretion to the insolvency practitioner, if they feel that asking for more information is warranted. 

Also, I ask the hon. Member for Chesterfield whether it makes sense to set a level in primary legislation. Clearly, given inflation and so on, the level that makes sense in 2014 might not make sense in a few years’ time. That is another good reason for it to be set out in the insolvency rules. The advantage is that the rules can be flexible if things get to the stage where the level is not generating significant savings and perhaps needs to be raised. Equally, if the circumstance that the hon. Gentleman outlined came to pass and it was felt by stakeholders that a lower level would be helpful, the Government would be able to act on that. For those reasons it is useful to have a debate about what the right level of that small debt should be. I hope that the hon. Gentleman is happy to withdraw his amendment, recognising the safeguards in place. 

Toby Perkins (Chesterfield) (Lab):  It is a great pleasure to serve under your chairmanship, Mr Brady. I will respond in the spirit in which the Minister’s response was delivered. She raises a legitimate point: the amount

left in the estate is often not the full amount owed, and that would reduce the incentive here. However, in this place, we have to be very careful not to make legislation that creates an incentive for fraudulent behaviour. I stand by the point I made: a business, quite rightly, might legitimise this in their mind by saying, “I had invoices for £900 outstanding. They are paying 50p in the pound. No one knows exactly what we were or weren’t owed, so if I put invoices in for another £900, in total I’ll get what I should have got anyway, albeit in a different way.” The Government might be creating an incentive to act fraudulently. 

The Minister is right to say that the power is there for insolvency practitioners to demand evidence. However, I worry somewhat about the message that it sends if no evidence is required when there are debts outstanding, and what the impact might be. Notwithstanding that, she made a legitimate point about whether putting a specific amount into primary legislation is the right way to go about this. I hope that she will continue to keep this topic under review, because we want to be careful not to create disincentives such as those I described. I accept the Minister’s comments on amendment 223. 

On amendment 224, £1,000 is a lot for an individual insolvency, and I want to test the will of the Committee on that amendment. Many individual bankruptcies are for relatively small amounts, so if £1,000 starts to be claimed from people who are in a pretty desperate situation anyway, a perverse disincentive might be created. I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Clause 119 ordered to stand part of the Bill.  

Clause 120 

Creditors not required to prove small debts: individual insolvency 

Amendment proposed: 224, in clause 120, page 95, line 30, leave out 

“an amount prescribed by the rules” 

and insert “£100”—(Toby Perkins.)  

Question put, That the amendment be made. 

The Committee divided: Ayes 6, Noes 9. 

Division No. 22 ]  

AYES

NOES

Question accordingly negatived.  

Clause 120 ordered to stand part of the Bill.  

Clause 121 or dered to stand part of the Bill.  

Schedule 9 

Trustees in bankruptcy 

The Chair:  Amendment 225 may be proposed at this point. 

Toby Perkins:  I had not anticipated this opportunity, but given the Committee’s earlier view, it is worth while moving amendment 225. Our view is that the changes set out in schedule 9 go a little too far in removing responsibilities from receivers and rights from creditors. 

The Chair:  Order. May I assist the hon. Gentleman? I understand that this amendment has already been debated—I was not in the Chair at the time—so this is an opportunity to put it to a Division. 

Amendment proposed: 225, in schedule 9, page 215, line 41, leave out paragraph 6.—(Toby Perkins.)  

Question put, That the amendment be made. 

The Committee divided: Ayes 6, Noes 9. 

Division No. 23 ]  

AYES

NOES

Question accordingly negatived.  

Schedule 9 agreed to.  

Clause 122 

Time limit for challenging IVAs 

2.15 pm 

Amendment made: 188, in clause 122, page 96, line 17, leave out “approved the” and insert 

“decided whether to approve the proposed voluntary”.—(Jo Swinson.)  

Clause 122 as drafted introduced a time limit for the challenge of the approval by creditors of an individual voluntary arrangement (“IVA”). A decision may, in fact, be challenged whether or not the IVA was approved, and the amendment changes clause 122 to reflect this.

Clause 122, as amended, ordered to stand part of the Bill.  

Clauses 123 to 131 ordered to stand part of the Bill.  

Clause 132 

Power to establish single regulator of insolvency practitioners 

Toby Perkins:  I beg to move amendment 226, in clause 132, page 111, line 36, leave out “designate a body” and insert “create a single regulatory framework”. 

The Chair:  With this it will be convenient to discuss the following: 

Amendment 227, in clause 132, page 111, line 39, at end insert— 

‘(1A) This framework may be overseen by several regulatory agencies.”.

Amendment 228, in clause 132, page 111, line 39, leave out from end of line to end of clause 132. 

Toby Perkins:  The final section on insolvency enables the Government to establish a sole regulator if the proposed changes to the current system of self-regulation do not have the desired effect. This reserve power will fall if not used within seven years of coming into force. We all agree that further homogenisation of regulation in the insolvency profession is desirable, however, we remind the Government that this does not necessarily have to be done by establishing a new single regulator. It is not hard to imagine how moving to a single regulator would involve significant change, time and cost, resulting in a regulation gap from the time the existing registered professional bodies ceased to regulate a profession until the new regulator was able to get up to speed. There may be costs attached to the process of winding down existing functions. 

Professionals in the field want clarity. A survey of R3 members earlier in the year found that 50% of respondents favoured the introduction of a single regulatory process, compared with just 21% favouring a single regulator, 14% preferring the existing multi-regulator process and a similar figure favouring fewer regulators. It is clear that the majority of insolvency practitioners have a thirst for reform in this area and are keen to see some reform introduced, but the Government’s chosen methodology does not have the trust of the trade. We fear that this could strangle the new regulator at birth and undermine the chance of these clauses delivering what they intend. 

Likewise, the Government’s own review of insolvency practitioner fees, published in March, acknowledged that such a change would, 

“represent a significant change to the regulatory regime” 

and involve time and money. Our amendments would overcome these issues and the uncertain position the profession currently finds itself in. Rather than a new giant quango, they would create a single framework in which all the regulators can operate according to the same principles and processes. A single regulatory process could avoid the drawbacks and the regulatory gap, and would be flexible enough to take account of accountants and lawyers who work in insolvency, and therefore require more than one regulator. 

When considering the amendments, we should remember why the current process exists. It is not because the question of a single regulator has not been considered previously, but because the number and breadth of organisations involved in this kind of work is fairly wide-ranging, and those organisations have well-respected regulatory bodies of their own. At the time of the Insolvency Act 1986, it was considered that having a single regulator was not the way to go, but that instead there should be different regulators for these businesses, which were already being regulated by those regulatory bodies. 

As time has passed, the sense that there needs to be some streamlining of the regulatory process has been established, and we support that principle.

Having a single regulatory framework, as proposed in amendment 226, is a better way of handling this situation than having a single giant quango as a new regulatory body. 

Notwithstanding the Minister’s persuasiveness, I hope to press the amendment to a vote. It may be that I am persuaded otherwise, but at this stage I intend that we should hear the views of the Committee on the amendment. 

Jo Swinson:  I am glad that we seem to be making at least some progress, and that the hon. Gentleman accepts that he may be convinced by what I have to say in resisting his amendments. I hear the case that he puts and there is not a massive difference in what we feel is the best way forward. In the research that he cites, he highlights that 50% of insolvency professionals tend to favour a single regulatory process, and of course what we have been doing with our amendments to the way that the process currently works, the new proposals in the Bill and indeed some of the changes we have already implemented, such as the single complaint gateway, which provides that online portal to make it much easier for people to know exactly where they are supposed to go so that they can have one location as their point of contact to make a complaint, are all very much in the spirit of what he suggests, namely that there should be a much more consistent process. I thank him for tabling the amendments and I think we have quite a degree of agreement on the need for some consistency, but I also believe that the better way to do that is through the measures in the Bill. 

At the moment, we have a system of self-regulation, with several different regulators. As the hon. Gentleman said, the Office of Fair Trading study into the market for corporate insolvency practitioners and Professor Kempson’s review of IP fees found that this system currently lacks the confidence of users. That is the problem we are trying to address and indeed IPs themselves recognise that action needs to be taken. Our vision is to create a transparent, consistent, accessible, independent and accountable system, and I think we are all on the same page in that regard. 

Clauses 125 to 131 will strengthen the current regime by driving forward that consistency, transparency and accountability. We will introduce regulatory objectives and proportionate sanctions for the insolvency service to ensure that the regime is clear and transparent. Of course, those who do not deliver that can, and will, be held to account; that is vital. 

I believe that these changes will greatly improve the trust and confidence in the regulatory regime for IPs without the need for any further intervention. However, if that is not the case and self-regulation in the industry is shown not to work, it is vital that the Government can take action swiftly to introduce a new and stronger regime, by establishing a single independent regulator for the insolvency profession. However, it is important to note that this power would be used only if the other methods that we have outlined fail to achieve the desired effect. 

Since the OFT report in 2010, we have worked with regulators to provide consistency. We have made good progress, but there is still some way to go. The measures in the Bill will help by driving that consistency. 

Toby Perkins:  The Minister’s approach appears to be to put in place a power that may be used by some future Government, but will not come into effect at this stage.

If changes are delivered without this power, they will not need to use it. However, having a single regulatory framework is accepted by the industry. The Minister is proposing a reserve power that may be used in the event of failure. We are proposing to make the change in terms of the framework, as opposed to the quangos that operate it. That is a neater approach that would deliver reform. It would be a smaller, more operable change rather than a major change that may not be used. 

Jo Swinson:  The measures in the Bill make the kind of change that we want. We want to tweak what we already have. A lot of other countries have the single regulator model and it works very well, and there is some evidence that that might be the way to go. However, it makes sense to do what we are attempting in the Bill, which is to use the current approach, tweak it to make it better and improve that consistency, working with the model that already exists, to strengthen and improve what we have. We are keeping the idea of having a single regulator very much as a last resort. 

As I was saying, we have already made good progress here. However, if the revised regime in the Bill does not deliver what we need, particularly in the confidence of stakeholders, that would be a sign that self-regulation was not working and that something more radical and new is needed. In that circumstance, the amendment would not be the answer, because it is effectively another form of self-regulation. So, if the measure is found not to work, we have a back-stop of an alternative action that can be taken as the last resort. If, having made these changes and tweaked the system, we find that that still does not command confidence, I suspect that the idea of having that multiple regulatory system will have had its day. However, it is important to note that, if that power is exercised, it would be with proper consultation and an assessment for costs and benefits. It would be subject to the affirmative resolution procedure and there would be the opportunity for full debate. 

The hon. Gentleman mentioned a couple of difficulties that would arise if we were to move to such model, very much bearing in mind that that would be a last resort. He suggested that there would be a potential regulation gap and I understand that that is a genuine concern. However, I think there would be a way of having a transition from the existing regime to a new regime. We have found, for example, where we recently had the Financial Conduct Authority taking over some of the functions of the OFT, that we managed to plan and deliver that transition smoothly. There are precedents for how that can be done. Similarly, on the hon. Gentleman’s point about whether a new regulator would take some time to get up to speed, it might not end up being an entirely new body. It could be, but it could equally end up being one of the existing bodies that would take on the regulatory function for the entirety of the industry, or it could be a body such as the FCA itself. It would not necessarily be a situation where the regulator did not have that embedded knowledge and understanding of the industry and a difficulty in getting up to speed. 

I absolutely agree that consistency within the regulatory framework is vital. It can be delivered by the oversight regulator through the clauses that this Bill introduces, along with a continued close working relationship between the oversight regulator and the regulators themselves. 

If it becomes necessary for the clause 132 power to be exercised, it will allow for a radical change and a totally different approach, after all other attempts to reform the system have failed. At that point, I do not think it would be appropriate to try again to reform the self-regulatory system that we have in place at the moment. For that reason, I urge the hon. Gentleman to withdraw his amendment. 

2.30 pm 

Toby Perkins:  My generosity of spirit appears to be almost infinite today. On the basis of what the Minister has said, I accept that she will be mindful of the points we have raised and that the Government are committed down a certain path. Given the other things in the Bill, it would be sensible to have the reserve power. We will have to see how that is utilised in times to come, or if it ever is. I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Clause 132 ordered to stand part of the Bill.  

Schedule 10 agreed to.  

Clauses 133 and 134 ordered to stand part of the Bill.  

Clause 135 

Protected disclosures: reporting requirements 

Ian Murray (Edinburgh South) (Lab):  I beg to move amendment 230, in clause 135, page 114, line 19, at end insert— 

‘(4A) The Secretary of State shall make amendments to this section under the powers of subsection (4), to provide for the definition of “workers” to include “applicants”.

It is a pleasure, Mr Brady, to have you back in the Chair. One has to ask what you have done to deserve that particular pleasure, but perhaps we can find out later. It is also a great pleasure to follow my hon. Friend the Member for Chesterfield, who has yet again managed to win a vote in this Committee, on improving insolvency provisions in this country. I hope that the Minister’s generosity of spirit will continue. If she does not wish to approve our amendments, perhaps she can just fall asleep, as she did this morning, and they can go through unopposed. 

We are now on the employment part of the Bill. The amendment is fairly simple, but it has wide-ranging consequences for those who wish to use whistleblowing at work. The amendment would extend the Government’s ambitions in the Public Interest Disclosure Act 1998 regulations and on whistleblowing to blacklisting. Blacklisting is a major issue, which this Parliament has tried to deal with. The Scottish Affairs Committee has produced two extensive reports—an interim report and a full report—on blacklisting. We have also had a number of Opposition day debates on the matter, all of which have been similar to the pubs debate we had in part 4, in that we have had to drag the Government kicking and screaming to do anything on these issues. 

Sheryll Murray (South East Cornwall) (Con):  That is the second time that the hon. Gentleman has referred to my amendment. I put on record how grateful I am for the Opposition’s support for that amendment. 

Ian Murray:  It is very kind of the hon. Lady to intervene and do that. We accept that gratitude and we will continue in that vein. Hopefully she might reciprocate with some of these amendments. She reciprocated this morning by not paying attention, but perhaps she will consciously vote for one of our amendments in the next few minutes. 

It is worth reflecting on what the Public Interest Disclosure Act 1998 seeks to achieve. It provides protection to employees and workers. An employee’s dismissal will be automatically unfair where the reason for the dismissal is that they made a protected disclosure, which is whistleblowing as we know it. Workers have the right not to be subjected to a detriment as a result of making a protected disclosure. Employees or workers bringing a whistleblowing claim do not require a minimum period of service with the employer; it is a day one right, as with discrimination and other protected characteristics. There is also no limit on the compensation an employee can be awarded. 

Those aspects are particularly relevant in seeking to understand the increase in the number and types of these claims over recent years. It is important to bear that in mind when thinking about blacklisting, which is the subject of our amendment. The whistleblowing aspect is important to preserve, but the reality is that high-salary individuals have sought to use the day one uncapped compensatory protection offered by PIDA to bring claims to satisfy the level of compensation they wish to see, rather than trying to address a genuine unfair dismissal claim through the whistleblowing legislation. 

I can give an example. Someone who is on a salary of £2 million per year, who claims to have been unfairly dismissed from their work, would find the employment tribunal system unsatisfactory on the basis that compensation is capped. In that example, the cap would be at the level of about a month’s salary, if not less. So they would have to find another avenue if they wished to seek redress for unfair dismissal, and people have used the whistleblowing legislation to whistleblow on their own contracts and so on in order to try to make those claims. 

That is why it is important to put into context why we are looking to extend some of this to individual applicants as well as workers themselves. Under the legislation, the employee must make a qualifying disclosure under six broad terms of malpractice. The first of these is a criminal offence, which would ordinarily be something that someone wishes to report. That seems fairly straightforward. The other terms are a breach of any legal obligation; a miscarriage of justice; a danger to health and safety, which is clearly related to whistleblowing regarding blacklisting in the construction industry and other industries where health and safety are very much prevalent; damage to the environment, where we all want to see included any area on which an employee wishes to whistleblow; and, of course, the deliberate concealment of information about any of the other breaches or types of malpractice. 

We can see that these include some very serious categories of malpractice, which people may wish to raise under these whistleblowing regulations. Critically, under the Enterprise and Regulatory Reform Bill—the Committee for which Mr Brady also had the unmitigated pleasure of chairing—the Government also added the

public interest test. If, therefore, an employee takes a whistleblowing action and is unfairly dismissed, the issue they raised could be incredibly serious, whether a miscarriage of justice, a criminal offence, damage to the environment or health and safety. 

We think that the Government’s ambitions for what they are trying to achieve with clause 135 of the Bill do not quite go far enough. Perhaps we could reflect on the explanatory notes to the Bill, which state: 

“Clause 135 provides a power for the Secretary of State to require certain bodies listed on the PID(PP)O to report annually on disclosures by workers. The content of the report will be prescribed by regulations, which will also determine how the report is published and timing of the report. The Secretary of State also has the power to make further regulations setting out additional bodies to report annually. These regulations will be subject to parliamentary scrutiny by debate in both Houses.”

We can see from the clause that the extension of the whistleblowing legislation that the Government are trying to achieve here is incredibly limited. They are extending it only so far as to ensure that companies or bodies can report to the Secretary of State on the number of workers and the types of workers. We are not quite sure how the regulations will be set out, but I imagine that the information would be set out on that basis, perhaps with a matrix under those six headings of malpractice showing how many people have complained and what the remedy may have been. While that is a service, that is pretty much the sum total of the Government’s ambition on this. That has been emphasised by Cathy James, the chief executive of Public Concern at Work. I quote from the document that her organisation sent to the entire Committee on 25 June 2014: 

“These reforms do not go far enough. This is a clear missed opportunity for the Government to strengthen the law that protects whistleblowers. While the proposed new requirements on regulators to report annually are a step forward”—

which is what we have just seen with this clause— 

“there are still some gaping holes in the law. These include the prevention of blacklisting of those who have blown the whistle”. 

That is crucial. She then goes on to talk about a number of other issues which the Government have not included in this report. However, our amendment focuses particularly on blacklisting. It would probe the Government on what other plans they have for extending this, perhaps into, 

“gagging clauses and an overall simplification of the law”. 

Cathy James goes on to seek some information with regard to how this can be addressed, particularly with the 80% 

“drop in claims to employment tribunals since the introduction of fees”. 

Fees were introduced as part of the Enterprise and Regulatory Reform Act 2013 by the Ministry of Justice, and they are a 

“barrier to people taking whistleblower claimants”. 

That is a slight aside to what we are discussing, but it is worth getting on record. 

Cathy James went on to add: 

“Having undertaken a thorough review of the effectiveness of whistleblowing in the UK”, 

which Public Concern at Work did as part of its remit, 

“we are disappointed that only a handful of the Whistleblowing Commission’s recommendations are being adopted by Government.” 

She was referring particularly to the lack of ambition that the Government seem to be showing in terms of the opportunity to put something into the Bill that could clearly make a difference to some of those issues. 

It can be seen from the list of malpractices that I emphasised at the start that it is important to ensure that employees can raise issues without being discriminated against. Our amendment would add to the clause a provision that people should not be blacklisted for participating in whistleblowing, and that there should be a mechanism for redress if they are. It is an opportunity for the Government to show that they take the issue of blacklisting seriously, because it has been shown to be a national scandal when we have debated it in this House. Many of the trade unions, UCATT and the Blacklist Support Group have consistently raised with us in Parliament how much of a national scandal it is. It ruins lives. 

The issues affect thousands of workers who have been denied employment and left unable to make a living or support their families. A lot of them have been unable to get back into employment. Given the example of what happens with blacklisting, particularly but not exclusively in the construction industry, one would hope that anyone whistleblowing on the basis of health and safety or environmental regulation breaches would be able to. We are currently discussing fracking in this House, along with all the environmental issues connected with it, including vibrations, water table pollution and so on. If someone were to whistleblow on those particular health and safety or environmental grounds, they might be blacklisted from working in that industry. They must feel safe to make such allegations without having to sacrifice not only their current employment but any future employment as well. We must extend that to other areas if we can. 

Public Concern at Work has also said that we should use the Bill as an example of the carrot-and-stick approach with employers by putting it on the face of primary legislation that blacklisting is unacceptable. Although extending it to applicants might not be heavily used, and although there might be ways to subconsciously blacklist people, if you like, without actually using a list of names—it might be enough merely to know that someone has been active in whistleblowing on health and safety breaches—it would send a strong message that prospective employers cannot assess people on the basis of how previous job applications have gone or their job history. That has been tested. In the 2010 case of BP plc v. Elstone, the judge emphasised his disappointment that he was unable to extend the legislation before him in the case to that application to the employment tribunal. 

We feel that this is a huge missed opportunity. In the spirit of this Committee, I would be delighted to continue that co-operative approach by listening to the Minister before I decide whether to press the amendment to a vote, but persuasive though she has been with my hon. Friend the Member for Chesterfield, we will analyse the question when we have heard from her. 

Jo Swinson:  I am delighted that the hon. Gentleman ended his remarks on a slightly more charitable note than he began them when he suggested that I had been sleeping during an earlier part of the Committee. I had let my attention move to a subsequent clause at that

point in the vote. It is certainly a good lesson to me to stay in the moment, but I do not think it is fair to suggest that I would go to sleep. 

Clause 35 takes the critical step of putting in place a power to require prescribed persons dealing with whistleblowing to report annually on public interest disclosures. A report last year by the University of Greenwich and Public Concern at Work found that three quarters of whistleblowers believe that nothing is done about the wrongdoing that they report. That statistic should worry us all, so we must address people’s lack of confidence in the whistleblowing framework. 

Prescribed bodies are currently under no legal obligation to investigate matters reported to them. The duty will introduce public reporting of information to help demonstrate that reports of wrongdoing are taken seriously. It is important to point out that the measures are not intended to compromise the confidentiality obligations of those bodies. It is vital that whistleblowers are responded to positively by those who are in a position to act. We have heard case after case in which this has been the issue and that is why all parties represented in the Committee agree that whistleblowing protection is so important. We know that many regulators have procedures in place to handle whistleblowing disclosures. However, some do not and a reporting duty will make sure that all regulators are more aware of concerns that are raised to them through whistleblowing. Of course, that will require regulators to consider the impacts of whistleblowing in their sectors. 

2.45 pm 

A minimum guarantee that regulators should consider how they handle whistleblowing disclosures should give greater confidence to whistleblowers that their concerns are heard and action taken when necessary. On the details of the reporting process, which is a matter that the hon. Member for Edinburgh South raised, the Department has just completed a consultation to determine the best approach. It began at the beginning of August and finished on 1 October. Responses are still being analysed but we expect to report on this in the new year to make sure that we get it right. 

I want to say how we intend this to operate across the devolved Administrations, because employment law is a reserved power, yet many of the functions of regulators are devolved. We expect the reporting process for entirely devolved bodies, such as the Care Council for Wales, to mirror the process for UK-wide bodies, but we will not require these entirely devolved bodies to report to the UK Parliament. Let us be clear: this clause is only one of many steps we are taking to change cultural attitudes towards whistleblowing. It is not anticipated that the clause will be the solution to all issues that whistleblowers face. I shall not detain the Committee long on this, but it is important to point to some of the other actions that the Government have taken on whistleblowing, in order to provide reassurance that this is part of a strong package of measures to tackle this important issue. 

In addition to the measure that we are debating today, we are issuing guidance to employers, workers and prescribed persons, including a non-statutory code of practice for employers. We are analysing the system that refers disclosures within employment tribunal application forms to the relevant regulator, bringing student nurses within the scope of the legislation and

considering whether other student groups need to be added. That is an issue that has long been raised by the hon. Member for North Ayrshire and Arran (Katy Clark), who has worked tirelessly on these issues, and I know she will be delighted that that change is being made. The Department of Health is working to investigate whistleblowing procedures within the NHS and the Home Office is doing similarly to strengthen protection within the police. We have updated the prescribed persons list, added MPs to it, introduced vicarious liability, introduced a public interest test, removed the good faith test and brought more NHS workers into scope. 

The Government are taking a whole range of steps to deal with this, because it is such an important issue, as the Committee will agree. The amendment that the hon. Member for Edinburgh South is proposing will take us to the issue of blacklisting, but first let me deal with his question of whether there will be an increase in whistleblowing claims as a result of the unfair dismissal compensation cap. Because that cap is set at a relatively high level—I appreciate that there are different opinions about that and we have had debates about it—of £74,200 or 52 weeks’ salary, whichever is lower, it is still significantly higher than the vast majority of claims. I do not think that it is driving an increase in whistleblowing claims at employment tribunals. 

Turning to the issue of blacklisting, which the hon. Gentleman raises in his amendment, suggesting that job applicants are added to the definition of “worker” in subsection (4) of the Employment Rights Act 1996, I share his concern about the practice of blacklisting. It is abhorrent, unacceptable and illegal. There are hefty penalties, rightly, if people are found to have indulged in this kind of appalling behaviour. I appreciate the frustration that many involved felt when they found out about the case of the Consulting Association, which came to such prominence because the legislation change in the previous Parliament had not happened early enough to catch the Consulting Association. The level of penalties available to the regulators to deal with that were therefore not of the order that most people would have wanted to see. I absolutely understand that frustration. However, it is important to recognise that we now have a strong set of protections against blacklisting with strong penalties for those who break the law in that regime. 

The hon. Member for Edinburgh South mentioned the Scottish Affairs Committee’s report on blacklisting. It has already published its interim report but we are still waiting to hear its final findings. My right hon. Friend the Secretary of State for Business, Innovation and Skills and I have, on many occasions, encouraged anyone—whether Members of Parliament or external organisations—with any evidence of ongoing blacklisting to get in touch and send us that. We would take that with the utmost seriousness. Indeed, we have passed on that Select Committee report to the Information Commissioner for further investigation. We absolutely accept the seriousness of blacklisting but, much as there is understandable concern about what has happened in the past, we do not have evidence of any kind of ongoing blacklisting. 

In our consultation, we asked about the issue of whistleblowing. Again, no evidence was submitted to suggest any kind of activity preventing known whistleblowers from finding employment today. We had

a very good response to our consultation and published our response back in June. However, evidence of that activity was not forthcoming. If any individuals think that they have been unfairly excluded from employment, perhaps because they are on a list of known whistleblowers, they can report their concerns to the Information Commissioner’s Office. The office has the power to investigate misuse of personal data under the Data Protection Act 1998 and can impose penalties of up to £500,000 for serious breaches. 

Ian Murray:  I am grateful to the Minister for running through what the Government have been doing on blacklisting. The issue is surely that there may be no evidence to suggest that blacklisting is still taking place—I hope that it is not still taking place. If there is not a strong piece of primary legislation, people who wish to whistleblow may not come forward, out of fear for their job and future employment. There is a chicken and egg issue here in terms of what we are trying to promote. 

Jo Swinson:  I understand and accept the hon. Gentleman’s point, but I disagree with him on whether there is a strong piece of legislation dealing with this. The Public Interest Disclosure Act 1998 was a strong piece of primary legislation, and the Government have taken all these steps to strengthen and improve it as further evidence has come forward about where it is and is not working well. We also have regulations on blacklisting which are, if I recall correctly, secondary legislation but which none the less provide strong penalties. Some of those penalties would come under the Data Protection Act. 

The protections are spread between different pieces of legislation, but I believe that they are strong. If the Information Commissioner issues a fine and the person does not comply, that can ultimately lead to a criminal offence being committed and enforced. If a worker thinks that their employer has provided a negative reference on the basis that they have made a public interest disclosure or blown a whistle, they have a route to redress through employment tribunals. 

I am glad that the hon. Gentleman tabled this amendment, as we have been able to have a debate about blacklisting, which is important. However, I am not sure that the amendment is appropriate for the clause, which is about the role of regulators in particular. I assure the Committee that the Government will continue to evaluate all the information we receive in order to promote the value of whistleblowers and to ensure that we protect people who have the courage to come forward. On that basis, I hope that he is reassured and will withdraw his amendment. 

Ian Murray:  I thank the Minister for her helpful response. It is genuinely helpful because it has allowed us to have a conversation about the serious issue of blacklisting and whether we should be pressing primary legislation in this House to firm up on some of those issues. Public Concern at Work has been quite clear that this is a missed opportunity. It is the second piece of primary legislation to go through Parliament that does not include something that helps with the issue of either the actuality of people being blacklisted or the perception of employees who wish to take a whistleblowing or public interest disclosure and subsequently leave their

job, or are sacked, and win or not a tribunal, as the case may be. These people fear for their applications to other employers. In the main, people are whistleblowing for health and safety or for being a member of a trade union or all of the other issues that we hear about, either anecdotally or otherwise. They are likely to stay in the same sector and it is likely that people will know of them or it will be very easy to find out who they are. 

The Labour Party think that it will give added protection and comfort to allow applicants to make a public interest disclosure without fear of being blacklisted, either in the strong sense of being on a named list—which is and always has been against the law, as we know through the Information Commissioner’s Office and the blacklisting issues that this House has seen—or in the sense of being subconsciously blacklisted, because the individual has either been sacked or left their job because of a whistleblowing issue. 

This is an incredibly serious issue. The Opposition feel that, while the Government have made some progress, they have missed the opportunity in the Bill to add more clauses that would assist with some of those issues. On the basis of the whistleblowing commission that it put together, Public Concern at Work provided the Committee with 15 different issues where it feels the Government could have taken steps to improve the whistleblowing issue further. 

Stephen Doughty (Cardiff South and Penarth) (Lab/Co-op):  I strongly support what my hon. Friend is saying. Blacklisting is a horrendous practice and we need to do all we can to protect whistleblowers. Does he agree that the Welsh Labour Government have taken a very positive approach on this issue, working closely with trade unions, including the GMB, of which I am a member? We have briefly spoken about this before; unions have shown the way in taking a strong stance on this issue. 

Ian Murray:  I am grateful for the intervention. Most of these issues are about people making a stand and not necessarily saying, as the Minister did in her response, “We have no evidence that this is currently taking place so there is no need for us to do anything about it.” A strong piece of regulation is a deterrent that says to employers clearly that any such activity is unacceptable. The Welsh Government have been very strong in their view that they will not give public sector contracts to people who have been involved in blacklisting. The Scottish Government, to their shame, voted against doing such a thing in Scotland, despite their rhetoric. I never miss an opportunity in this Committee to remind people that the SNP are not a left-of-centre party, but indeed talk left and act right. That is another example, in terms of blacklisting. 

We have a piece of primary legislation that had a real opportunity to add significantly to the public interest disclosure regime and deal with some of the issues raised with this Committee by Public Concern at Work. We seem to have missed that opportunity, so I will test the will of the Committee and give the Government one last chance to strengthen the Bill slightly further. 

Question put, That the amendment be made. 

The Committee divided: Ayes 6, Noes 9. 

Division No. 24 ]  

AYES

NOES

Question accordingly negatived.  

Clause 135 ordered to stand part of the Bill.  

Clause 136 

Financial penalty for failure to pay sums ordered by employment tribunal etc 

Ian Murray:  I beg to move amendment 231, in clause 136, page 115, leave out lines 25 to 29. 

The Chair:  With this it will be convenient to discuss the following: 

Amendment 232, in clause 136, page 118, line 41, at end insert— 

‘(12) The Secretary of State may make regulations to allow a penalty notice under this section to include a provision for the publication of the name and other particulars of those naming employers who do not pay the relevant sum as per the conditions of the notice.”

Amendment 233, in clause 136, page 118, line 41, at end insert— 

‘(12) Any payments made under this section by the employer shall reduce the liability of the employer for the relevant sum prior to being allocated to any sums payable under the penalty notice.”

Amendment 234, in clause 136, page 119, line 25, after “penalty” insert “and relevant sum”. 

Amendment 235, in clause 136, page 119, line 34, after “penalty” insert “and relevant sum”. 

Amendment 236, in clause 136, page 119, line 42, after “penalty” insert “and relevant sum”. 

Ian Murray  rose—  

Hon. Members:  Hear, hear! 

Ian Murray:  I am grateful for the false encouragement of my colleagues on the Opposition Benches. 

Clause 136 deals with financial penalties for failure to pay sums ordered by an employment tribunal, or settlement sums elsewhere. It is an incredibly important provision, and it is something that the Opposition have been looking to achieve for some time in this Parliament. 

In the Enterprise and Regulatory Reform Bill, the Government pushed through a number of measures. In Committee on that Bill, the Minister’s predecessor, the right hon. Member for North Norfolk (Norman Lamb), looked upon some of the amendments we had tabled

sympathetically—as Ministers always seem to do in these Committees—and said that he would come back with measures that would better enforce payments ordered by employment tribunals. Although he did not accept our amendment on that occasion, he did in spirit—then he left his job and passed it on to someone else. 

The amendment we tabled to the Enterprise and Regulatory Reform Bill provided that 

“The Secretary of State may by order establish a mechanism for the enforcement of unpaid employment tribunal awards and ACAS settlements”.––[Official Report, Enterprise and Regulatory Reform Public Bill Committee, 3 July 2012; c. 362.] 

The Minister at the time did not accept that amendment. As I recall, he gave a 15 or 20-minute speech on how it was dreadful and he would not accept it, and on how we were playing political games. It is nice to see that common sense has broken out and the proposal has returned to the House. 

Amendment 231 would ensure that unpaid amounts include all payments. Proposed new section 37B(3)(b) of the Employment Tribunals Act 1996 does not include various items relating to the award that could be included when calculating a financial penalty. We suggest that everything should be included. Let us not forget that we are talking about a financial penalty levied on an employer for failure to pay. If an employer fails to pay, we should not exclude any of the related costs; it should be the sum total of them all. 

Amendment 232 would give the Secretary of State the option of creating provisions for a naming and shaming scheme to sit alongside the financial penalty should he or she so wish. We have naming and shaming schemes for the national minimum wage and the groceries code adjudicator, so I do not know why we do not have a naming and shaming scheme for employers that refuse to pay compensatory awards when a tribunal, which is almost a court of law, has found that they must provide the redress sought by an employee through the appropriate channels. 

Amendment 233 would ensure that any payments made by an employer go first to the relevant sum for the employee before the penalty fee is paid. Amendment 234 would give the same status to the compensatory award as the penalty fine. Amendments 235 and 236 would make consequential changes. 

I am very interested in hearing the Minister explain Government amendments 28 and 29, which will change the venue for an appeal against a penalty from the county courts in England and Wales, or the sheriff court in Scotland, to an employment tribunal. That is an incredibly interesting change to Government policy, given that people have to pay a fee to enter the employment tribunal system. Will the Minister explain in detail why that change is being made? 

As I said, it is good to see that the Government have finally come round to our way of thinking on unpaid awards for employees, which is why we support the clause, but we are concerned that it will only mitigate rather than remedy the problem of unpaid awards, which is why we tabled the amendments. Let us not forget that when someone has been wronged at work they have gone through the tribunal process, which is not easy to go through, given the provisions of the

Enterprise and Regulatory Reform Act 2013. People have to pass a number of hurdles. First, they must go to early conciliation at ACAS. If that breaks down, they are issued with a certificate to say that conciliation has been unsuccessful and must go into the employment tribunal system. An entry fee has to be paid to the employment tribunal system. If someone then wants to take it to a full hearing, there is an additional fee. As I said to a Conservative Member earlier, we do not believe it is fair for a pregnant woman who has been discriminated against at work to have to pay £1,250 to enter the employment tribunal system. That does not seem just and fair. 

There are a number of hurdles. After going through an incredibly stressful, time-consuming and often expensive employment tribunal, someone might be given a compensatory award which says that they have been wronged at work and the employer must remedy that problem, but the employer might just decide not to pay. There are a number of hurdles that someone would have to get past to be paid. That is why we must try to find a way of remedying the problem, particularly in cases where an employment tribunal sitting in front of a judge has declared that an employee deserves to be compensated for whatever wrong must be righted. 

This is a significant problem. In 2009, research by the Ministry of Justice—which, of course, administers the fee system in employment tribunals—found that 49%, or “almost half” as my notes say, of all employment tribunal awards went unpaid in the first instance, before any enforcement action is taken through the county court system. In Scotland, the situation is particularly bad, with 46% of successful tribunal claimants receiving no payment whatsoever and a further 13% not receiving the full amount of their award. Nearly half of all employees who are granted an award in an employment tribunal are not granted that award. Admittedly, some proportion of that 49% and 46% respectively will have gone through insolvency, which we just discussed under part 10, but there will also be a large number where the employer refuses to pay and it falls squarely on the employee to seek redress for that non-payment. 

Toby Perkins:  My hon. Friend makes the important point that this Government see as a matter of success the fact that they have driven people away from employment tribunals. We have seen huge reductions in the number of people going to them. It is hardly surprising that we have enfeebled employees when we have an economy in which wage growth is very flat. We then have a very expensive employment tribunal system where even if people are given an award, they do not get it. We should hardly be surprised that so few people now pursue those awards. It should not be seen as a sign of the economy’s health. 

Ian Murray:  My hon. Friend is absolutely right. In some regions of England, the number of employment tribunals has dropped by 80%. That is surely an indication not that 80% of claims were vexatious—the fee structure was supposed to remedy that—but of people’s fear of going into an unaffordable employment tribunal system. We heard evidence from trade unions, which are normally the buffer between the employer and employee before they enter the employment tribunal system. The trade union has sometimes said to a member, “You have a

very strong case to take this to an employment tribunal,” but the person has decided not to pursue it on the basis that there would be a fee payable. In some cases, the trade union even pays that fee but someone decides not to go forward. 

My hon. Friend the Member for Chesterfield is right to reflect on the fact that these issues are highlighted even more in a difficult employment economy. The Committee heard evidence from a citizens advice bureau in the east of Scotland—the area that I represent—about a client who resigned from his job after he was repeatedly not paid by his employer. He was not being paid for the work he was undertaking, so he resigned and took his case to an employment tribunal, which found in his favour, so in that sense, the wrong was righted. The tribunal ordered his ex-employer to pay him £889, but more than three months on his ex-employer has not paid him the award and the client believes that they may have wound up and started again in a different guise. These are all issues of insolvency. 

Given the intervention from my hon. Friend the Member for Chesterfield, we can see that in some instances it is absolutely possible to envisage a situation—perhaps I could use the pregnancy example again—where someone is going through an upheaval in their personal life in any case, with all the financial strains that go with that; they are then faced with a set of hurdles before they can even enter the employment tribunal system, which costs them a significant amount of money; and the tribunal then decides that they are owed an award which in the end is never paid to them. We welcome the fact that the Government are trying to do something about this but, as can be seen from some of our amendments, we think that there should be other steps in place to ensure not only that the Government get paid a penalty, but ultimately that the compensation award is paid. 

Amendment 232 sets out the ability for the Secretary of State to name and shame employers who fail to pay employment tribunal awards on time. As I have already said, the policy of naming and shaming employers who do not pay the national minimum wage has been announced four times by the Minister, but until a few months ago had been used only twice. The Government have named and shamed the policy more than they have actually used it. I believe that this has now changed, and a few more employers have been named and shamed. However, this also needs to act as a deterrent. What we are saying here is very much like an amendment regarding whistleblowing: it may never need to be used, but we need to have a deterrent. We need to say to employers that if they have been found in a quasi court of law to be in breach of employment legislation, then they have to pay the compensatory award that has been determined on the basis of the seriousness of that breach, and if they do not pay that we will make sure that they are named and shamed. 

We all know that businesses’ reputations are one of the most important things they want to protect. Any deterrent that would put companies into that particular naming and shaming environment would indeed be incredibly useful. I wonder if the Minister, in her response, would tell us whether she has given any consideration to a naming and shaming policy. Perhaps she can draw a parallel between the other naming and shaming issues, such as the national minimum wage and the groceries

code adjudicator, and all the other ways in which people could potentially be named and shamed. Why would that not be done in this particular instance? 

Amendment 233 is probably our most important amendment in this section. It would ensure that, out of any payments made by an employer, the relevant sum of the compensatory award for the employee is taken out first, before the penalty fine is paid. We should reflect on that: people have entered the employment tribunal system and been awarded a payment which they have not received. They go through a system in which a penalty may be levied on the employer for not paying the award, but the employer could quite easily say, “Well, that’s fantastic. I’ll pay the penalty, but I’ll continue to not pay the award,” and the penalty would be paid in the first instance. When I pressed the Minister for Business and Enterprise in the Committee, he seemed to get himself into a bit of a bind. I asked him: 

“Is there a danger the Government could be paid the fine and the compensatory award could remain outstanding, and what is the process in the Bill for continuing to pursue that?” 

The Minister replied: 

“Fines from the Government can, of course, be chased down by the Government. A whole series of measures already exists to allow the Government to ensure that fines are paid.” 

He admitted quite clearly to the Committee that the Government have a host of potential remedies which they can use to have a fine paid. The Bill ensures that that applies in the case of employment tribunals, as well. The Minister said clearly that the Government can chase down the fines, but did not make any reference to the actual compensatory award itself. 

I asked the Minister whether there was any danger that an employer would pay the fine to get the Treasury and the Government off their back, but would not pay the award. The Minister had said clearly that the Government have an array of ways to be able to claim back those fines. To this question, he replied: 

“Then you would still not have paid the fine that was due”. 

I am not quite sure what that means and whether or not we could then levy a second or a third or a fourth fine—a hundred fines—and the compensatory award might remain outstanding. It seems that the Treasury would build up an incredible array of fines which would come into the Consolidated Fund—and my goodness, the Chancellor needs that money after the deficit went up again last week, rather against everyone’s predictions—but the money is going into that fund and hardly touching the large deficit, which the Chancellor is unable to reduce, while the poor worker who has been wronged, has sought redress and has been granted an award is still sitting at home waiting for their few thousand pounds to land on the mat. That does not seem to me to be very equitable. 

I pressed the Minister further, asking him what happens if 

“You have paid the fine, but you have not paid the award.” 

He replied: 

“Then you still have not satisfied the tribunal.” 

I pressed him and asked what happens then. He said: 

“You continue not to have satisfied the tribunal, so they take action.” 

I pressed even further, asking: 

“What happens if you are fined again and then you pay the Government but do not pay the compensatory award?” 

He said: 

“This is pretty unlikely,”––[Official Report, Small Business, Enterprise and Employment Public Bill Committee, 16 October 2014; c. 126, Q295-299.] 

It may be pretty unlikely, but it is still in the Bill. It is the case that the Treasury can continue to fine the employer and collect that fine without the individual having any recourse to claim back the compensatory award. 

3.15 pm 

Toby Perkins:  I am glad that my hon. Friend is recounting the evidence session for the Committee. Those points are more interesting than might have immediately been considered. They expose that the Government have measures and initiatives in place to recoup their own fines, but that the poor wronged party in this has none of that support. A business may say, “Well, I will pay the Government fine.” It is unlikely that the Government will pursue the matter on a second, third or fourth occasion. They will have their fine. Their money is in their pocket but the person who was wronged at the start—46% or 49%, depending on where one is based—is left out of pocket. Surely there has to be a strategy for that. 

Ian Murray:  My hon. Friend has clearly been listening this afternoon. That is exactly the point that I have been making. The Government do need a strategy for dealing with that. It seems a little like déjà vu. Mr Brady, you may be feeling that yourself. Two years ago, when we considered the Enterprise and Regulatory Reform Bill, we had exactly the same debate about employment tribunal redress and the penalties for an aggravated breach. In that instance, an employer could be fined £5,000 for an aggravated breach. The issue is exactly the same. The fine could be paid first and the poor worker, whose compensatory award has not been paid, sits there waiting for that to happen. Amendment 233 says that, if an employer is fined by the Government for non-payment, any moneys that come in, in terms of satisfying that fine, go first to the compensatory award and then to the Government. 

If the Government levy a fine of £5,000, the invoice comes in and a £2,000 payment is made on account—there is a way of reducing the fine if one pays on time—the money that comes in, perhaps the first £5,000, should clear off the compensatory award first. Then the Government can either have the fine cleared, or they can go after the fine, as they would in any circumstance where a final Government invoice has not been paid. 

The full force of the Government machine is chasing fines. However, in the first instance, before they chase the fine, any money that is payable should go straight to the compensatory award. That would give employees a real sense that they can enforce the non-payment of awards. There would have to be some nuancing around the edges for insolvency. I am sure that the Minister’s officials would be able to deal with that issue when writing the legislation. However, it seems inequitable that someone could pay a massive fine to the Government

and decide that they are not going to go any further. That is why the compensatory award should be allocated first. 

I use the analogy of a parking ticket. One could pay a parking ticket but leave the car in the same place and cause an obstruction. One could continue to get parking tickets but the car would still cause an obstruction to traffic, without the root of the problem being resolved. The root of the problem has to be resolved in the first instance. 

Amendment 234 would give the compensatory award the same status as the penalty fine. The clause talks a lot about financial penalties but not about what is termed the “relevant sum”. Consequential amendments would provide exactly the same interest and recovery principles that are detailed in proposed new section 37H—they would apply not just to the penalty but to the award. The award could accumulate interest and be acted on within the other principles that the measure signifies for the penalty. There are pages and pages on how the financial penalty will be paid, on the interest and the interpretation of that, but nothing that says anything about how the compensatory awards, or the relevant sums in this case, would be paid. 

Interestingly, on page 118 of the Bill, proposed new section 37F, on the penalty notice, inserts subsection (3), which says: 

“A penalty notice must identify the relevant sum and state”— 

and there are nine qualifications, one of which is, 

“the period within which the penalty must be paid”. 

However, there is nothing that specifies the period within which the relevant sum must be paid. That could be part of this process as well as part of the enforcement issue. 

I will be interested to hear what the Minister has to say about the penalties, about whether compensatory awards can be enforced on top of that and about why they have moved enforcement from the courts to the tribunal system. We do not oppose the penalties—in fact, they are a very good idea—but in this case, without paying the relevant sums, the penalties could be quite irrelevant. 

Jo Swinson:  I am delighted to be able to discuss clause 136 and the proposed Opposition amendments to it. When I took over this role from my right hon. Friend the Member for North Norfolk, who has been referred to, we were in the middle of the passage of the Enterprise and Regulatory Reform Bill, which is now an Act. I recall having a meeting about employment tribunals and the awards that were made. I vividly remember being absolutely astonished and appalled at the level of non-payment of employment tribunal awards. The research we looked at suggested that some 40% of awards remained unpaid six months after the employment tribunal had come to its conclusion. 

For all the reasons that the hon. Member for Edinburgh South set out, if people go to the hassle of going to an employment tribunal, it is costly for everybody involved in terms of money, time and stress. That is partly why we are trying to encourage early conciliation and other measures that mediate and take people away from that process, but we recognise that sometimes there will be cases that have to go to an employment tribunal. When that happens, it is a pretty horrendous process for

everyone who goes through it, even if they end up winning their case. Small employers also find that the whole process is very draining, again, even if they win their case. 

I was flabbergasted that 40% of claimants who have gone through all that and won their case are not then paid their award within six months. One might not expect it to be 100%, the world being the way it is—there will always be circumstances where a company goes bust and difficulties arise—but I thought that that figure seemed far too high and that that needed to change. It is something that I have been keen to make progress on and work on. That is why I am delighted to see the penalty regime in clause 136 that we hope to put in place. 

Research undertaken at the end of last year by IFF Research for the Department for Business, Innovation and Skills found that at that stage around 35% of employment tribunal awards remained unpaid six months after judgment and a further 16% had only been partially paid. That is still a shocking figure. 

It is important to recognise that high levels of non-compliance threaten the whole credibility of the tribunal system. People who have paid to access a tribunal rightly expect that their award will be paid if the judge rules in their favour. People who try to avoid their responsibilities should not be allowed to get away with it; they have to face the consequences. This issue is about fairness for claimants and for employees, but it is also about fairness for companies that are doing the right thing, complying with the law and treating their employees properly. Rogue employers that exploit or abuse their staff and breach their employment rights should not get off scot-free. 

We recognise that the reasons why awards do not get paid are complex, so no single solution will fully address the problem. I will come on to some of the activities that we are undertaking to address other elements of the problem a little later, but part of the solution is to introduce the penalty on employers for the non-payment of employment tribunal awards—including any costs awarded to cover the employee’s employment tribunal fees—and ACAS-conciliated settlements. 

As well as establishing the penalty, the clause will allow the Secretary of State to appoint and authorise enforcement officers to operate the financial penalty regime. The amount of the penalty due will be linked to the size of the unpaid award, so it will vary from case to case. It will be the equivalent of half the unpaid award, including interest accrued on the award. There will be a minimum penalty of £100 and a maximum of £5,000. 

The enforcement officers will decide whether a penalty should be paid. The employer will first receive a warning notice and have the opportunity to make representations—particularly in case there has been an error, for whatever reason—and to appeal if a penalty is still applied. We hope that the measure will reassure claimants that, if they are successful at a tribunal, they will receive the award decided by the tribunal judge. It should also reassure those employers that comply and do the right thing that, when their competitors do not act in the same way, that will be addressed. That will restore confidence in the whole system. 

There is a question over whether people will be able to avoid paying the whole award by paying only the penalty. We heard the analogy of parking fines: will the

process be like racking up lots of parking tickets, but not moving the car? It is important to recognise that, if the penalty is paid but the award remains unpaid, more penalties can and will be applied. In such a situation, the employer will not be able to benefit from the reduction of the penalty for prompt payment within 14 days if both the award and the penalty are not paid. 

We want to ensure that penalties will be applied in extreme cases, but part of the thinking behind the policy is that it will encourage payment. It will have a deterrent effect on those who think that they can just not pay, or who try to pay next month or at some point that feels a little easier for them. The policy is about saying that they owe something, that it is important that the claimant is paid what they are due as decided by the employment tribunal, that they make it a priority, and that there is a significant consequence if they do not comply. The penalty is about trying to encourage swift payment, which is why it is payable to the Secretary of State rather than the claimant, with the sums going into the Consolidated Fund. 

We do not intend penalties to apply if the employer is insolvent, because in such scenarios the state would become a creditor, thereby reducing the funding that would otherwise go to the employees of the business or other creditors, which is not the outcome that we want. In such cases, the penalty will ultimately become recoverable through the courts once the time to pay has run out. 

I want to set out the other action we are taking to deal with these issues. We are doing more research into the situation. We have undertaken research into the amount of unpaid awards, but we are now trying to understand better the barriers to effective enforcement and we want to work with enforcement officers to address them. Hopefully, some of the measures in earlier parts of the Bill will help to improve the situation. If an insolvency has been engineered to avoid paying an employment tribunal award, or other creditors, the disqualification regime will be helpful, because the Insolvency Service will be able take that into account when considering whether someone is still fit to serve as a director. That will help with that element of unpaid awards. 

Ian Murray:  Insolvency is incredibly complex—I refer the Committee to the Register of Members’ Financial Interests, which includes my involvement in taking Heart of Midlothian out of administration. A company that is already insolvent will not be fined, but if a fine tips a company into insolvency, where does that fine rate in terms of preferred creditor status, or otherwise, in comparison with their compensatory award? 

3.30 pm 

Jo Swinson:  I will ensure that I respond to the hon. Gentleman’s question before I conclude my remarks, but I want to give it an accurate place in the pecking order. There will be some circumstances where it is not intentional that an award cannot be paid. It might be very difficult to enable a claimant to get their award if the company literally does not have the funds to do so. If there is any intent—if the directors want to avoid paying and have therefore taken their company into insolvency—that can be considered as part of the director disqualification regime and the new powers to order

compensatory awards. I will certainly get back to the hon. Gentleman, perhaps in writing, about that specific question on creditors. I will copy that letter to other Committee members, who I am sure will be interested to have the answer. 

The amendments look at a whole range of different elements of the penalty. They seek to include cost or preparation time orders awarded by the original judgment in the calculation of the penalty. They also seek to provide for “naming and shaming” and that any payment made goes to the claimant first rather than the consolidated funds. Amendment 231 is about including costs for the purpose of calculating the penalty, and I understand the spirit and intention of that. However, it would not be a particular additional incentive to pay the original award. The maximum penalty, in any event, is set at £5,000 and costs or preparation time orders are awarded in very few cases—less than 1%. When they are made, they tend to be for relatively low amounts. In the grand scheme of things, that would not make a significant difference in terms of what we aim to do with this policy. 

Amendment 232 is about publicising the names of employers that do not pay tribunal awards. I have some good news for the hon. Gentleman: the Government are already seriously considering that as part of a suite of measures to improve this situation. We are looking at ways to implement and run a non-statutory scheme that can better deliver the cultural change that the amendment seeks. It does not therefore need to be placed in legislation. 

The hon. Gentleman mentioned the scheme that we have up and running for the national minimum wage. With a small amount of indulgence, I will update him on the latest figures. This is a good example of how transparency can help to drive good behaviour. The new scheme rules came into place on 1 October and, so far, 30 employers have been named and shamed. It is important to get across that the new rules came into place for any investigations begun on or after 1 October. It can often take several months for investigations to work through the system. Many of the cases in which notices of underpayment are currently being issued actually began being investigated before 1 October, so they do not come under the criteria for the new scheme. That is perhaps why the numbers are not quite as extensive as some might have thought. I can confirm that the vast majority of employers in these circumstances are being named, and another tranche will be coming into the public domain in the not-too-distant future. That is important. 

There are some circumstances where genuine mistakes mean that the national minimum wage is not properly paid. Those employers will want to set out clearly to their stakeholders and customers why they let that happen, perhaps in the local media. In some cases, the company’s management may have changed; previous managers may not have taken the care that they should have over record keeping and payroll processes. Under new management, that company might then be able to turn over a new leaf. Those points can all be fairly put forward, but having that level of transparency is very helpful and provides an additional incentive to firms to get it right the first time. We are talking about people’s livelihood. Of course, one other way of not falling foul

of national minimum wage rules, which I would always encourage firms to be aware of, is paying above the national minimum wage. Then, even a tiny mistake in pence per hour and so on would not lead to their falling foul of the legislation in any event.

Ian Murray:  The Minister highlights a key issue. If employers pay well above the minimum wage—if, indeed, they pay a living wage—they will never fall foul of the legislation. She will be as disappointed as me that, while the Finance Secretary in Scotland is promoting the living wage, he voted against putting it into Government contracts in the Scottish Parliament. 

Jo Swinson:  The hon. Gentleman makes his point perfectly. 

We want to ensure that people are paid higher amounts when possible, because that helps with the standard of living. It helps individuals and their spending supports local economies. We should be slightly wary of legislating at a higher level when that could have a negative impact on unemployment, which is why we pay careful attention to the recommendations of the Low Pay Commission. 

Many firms will be able to pay more, and I would argue that they should; but a significant hike in the minimum wage would mean that some would have to make people redundant or lose staff. There is a balance to be struck, because we all want more employment as well as more well-paid employment. Naming and shaming can be a useful tool, because reputation is important. I hope that the hon. Gentleman will recognise that there is some agreement about that, even if it is not in the Bill. 

On amendment 233, the Government recognise that the introduction of a penalty should not reduce the likelihood of individuals getting their award, and priority should be given to the claimant, so that the state would not benefit from their not receiving payment. I understand those arguments, which is why clause 136 already incentivises the employer to pay the employee before paying the penalty to the state. 

When the warning notice is issued, the employer will have 28 days in which to pay the award and avoid the penalty completely. The provision is designed to encourage employers to do that, and is a pretty clear incentive. An employer who paid only the late payment penalty and not the award could of course be subject to the multiple penalties, and it would rapidly not be worthwhile for them to continue in that vein. 

Amendments 234 to 236 would provide for enforcement of both the original award and the penalty by the enforcement officer, and for interest to be added to the unpaid awards; but interest is already applicable to unpaid awards. Claimants can pursue unpaid awards through the county court, or the sheriff court in Scotland, and we consider that still to be the correct route; it makes for more robust and swifter action in the recovery of non-Government-imposed financial penalties. 

We want people to be aware of the routes available to them already. There is a fast-track enforcement scheme in England and Wales, under which claimants can apply to send a High Court enforcement officer, similar to a bailiff, to demand payment from the employer. It costs £60, but that is repayable by the employer. Alternatively, for a cost of £40, they can ask the local county court to

send an enforcement officer to get the money. For claimants who cannot afford the cost, remission of the fast-track fee is available. 

Some people use those already available enforcement options with some success. They are perhaps not known about as much as we would like, which is why we think that the penalty will be an incentive to employers to pay. 

Sheila Gilmore (Edinburgh East) (Lab):  Some of the civil law remedies that people have for bad debts of all kinds have, indeed, always been available, but they are particularly difficult for lay people to use. Sometimes— particularly, perhaps, where the sum involved many not be very large—people choose not to enforce. That is highly regrettable, so there must be a clear way for people to get their compensation. 

Jo Swinson:  The hon. Lady makes a good point. That is exactly why we are introducing clause 136. We recognise that there are existing routes, and we would still encourage people to be aware of them. People may choose to use them, but many, for whatever reason, will not—the success rate is not 100% for those routes either. We therefore have this penalty, which means that the employer will have to pay the award. If they do not, they will get a penalty, and if they continue not to pay, they will get another one. The costs will mount up, to the extent that it is not worth the employer not paying. Indeed, wilfully disregarding an employment tribunal judgment to the extent that the company faced penalty after penalty would start to call into question the judgment of those running it. That would be of great interest to those involved in assessing whether people were fit to serve in a responsible position, such as the director of a company.

Toby Perkins:  What would the Minister say to people who say that, if the Government are effective in pursuing this money, and we recognise that they are, why do they not provide that the first £7,000 or whatever they bring in should go to the victim, with payments after that point going to the Government in lieu of fines? 

Jo Swinson:  I suppose it is about the model on which enforcement is based. Currently, employment rights are generally enforced through the individual taking their claims to an employment tribunal. The onus is on the individual to enforce that. We make an exception for the national minimum wage. As we have discussed, we have not only the naming and shaming, but Her Majesty’s Revenue and Customs, which enforces the national minimum wage. It will take employers through the employment tribunal system, and it may end up issuing a notice of underpayment, which is complied with in most cases at that point. We therefore recognise that it is sensible in some cases for the state to do the enforcement. 

That is the system as it is set up. We are looking to improve the situation by bringing in the penalties in the clause. The Department is undertaking further work on how rights more generally can be enforced. My right hon. Friend the Business Secretary said he was keen to look at whether there was scope for the Government to look at workers’ rights more generally. That is not at a developed stage, and it will not provide any support in the short term, so it is right that we move ahead with these penalties. However, I understand the arguments being made. We want a system that is efficient and works well. If we can introduce these proposals and

find that the system works well, that is great, but it is fair to recognise that the wider issue needs to remain under consideration. 

We hope the new penalties will act as a deterrent to unscrupulous employers who do not wish to pay claims. We really are talking about pretty unscrupulous employers here. It is feasible, as we see in some national minimum wage cases, that an employer has broken the law by not properly paying the national minimum wage, but that they have not done so in dreadfully bad faith—they have made a mistake. Mistakes sometimes happen, and they can have significant consequences for employees, so it is right that there should be a consequence for the employer, such as naming and shaming or paying a penalty, as happens with the national minimum wage. 

We all recognise, therefore, that mistakes occasionally happen and that employers sometimes end up falling foul of an employment tribunal judgment, without necessarily being dreadfully unscrupulous. That said, if they fall foul of an employment tribunal judgment and then still do not pay the award, we are getting into a slightly different category. Clearly, they have not only broken the law, but not respected the body that made a finding in the case. The measure is designed to target that group of unscrupulous employers who refuse to deal properly with the rights of claimants who have been wronged, have won their case and deserve to be paid their money. Introducing the penalties in clause 136 is absolutely the right thing for the Government to do. I accept the genuine intention and spirit behind many of the amendments, but I hope that I have outlined why they are not necessary for the Bill to proceed. I urge the hon. Gentleman to withdraw his amendments.

3.45 pm 

Ian Murray:  I am grateful to the Minister for that explanation, and I will gratefully receive a letter on the preferred creditor status about whether the fines would take precedence over a compensatory award. Perhaps when considering it later—I appreciate that it may be a Treasury function—she might indicate whether the Government would assess, in insolvency situations, whether preferred creditor status could go to somebody due a compensatory award, particularly if there is evidence that the company has been dissolved on that basis. That would be a useful explanation. 

I am still worried, though, about individuals’ ability to receive a compensatory award. Yes, there is consensus across the House that we all want the issue resolved as quickly as possible and we want 100% of awards, where possible, to be paid to 100% of people 100% of the time, without the need to go through any of these processes, and I appreciate that the Bill makes provision for a warning notice to be issued that the compensatory notice must be paid, and therefore for the penalty not to be imposed, but what we want to know is what will happen at the opposite extreme. One would hope that if a warning notice were given to an employer for non-payment, they would pay the award instead of receiving the penalty; that is the carrot-and-stick approach that we would all want, but there are still a number of steps that an employer might take not to pay that award. The Government have made no analysis of the numbers involved in such cases, or what steps they would be encouraged to consider. 

The warning notice would be issued. The employer would then be able to make representations. If they continued not to pay, they would be given a penalty, and a period of time within which the penalty would be reduced if paid early. They could appeal the penalty notice, go through the appeal and have it rejected. A fine could then be levied through the process, and they could then pay the fine but not the compensatory award. My hon. Friend the Member for Hartlepool, the former Minister, has reminded me that today is the 40th birthday of the contemporary singer Louise Redknapp. In the words of her No. 10 chart-topping hit, “Let’s go round again”; the process could then start again. He is a big fan of her, and of the Stone Roses. They are at the top of the chart, along with the Average White Band. 

Oliver Colvile (Plymouth, Sutton and Devonport) (Con):  Is the hon. Gentleman confirming that he is, as the Scottish Labour party indicates, a dinosaur? 

Ian Murray:  Well, with a contemporary music reference like Louise Redknapp, we are certainly not dinosaurs. Perhaps before this Committee concludes at the rise of the House on Thursday we will get a contemporary music reference from the hon. Gentleman, but somehow I doubt it. The point is that there is a constant process for the employer involving appeals, warnings, penalties and reviews, but the poor employee is still sitting there waiting to be paid. With that, I will press amendment 233 to a vote. 

The Minister has said that she likes amendment 232, and might even consider implementing naming and shaming. Given that our amendment asks only for the Secretary of State to make regulations, she will have no problem voting for it, so I will press amendment 232 to the vote as well. I beg to ask leave to withdraw the amendment. 

Amendment, by leave, withdrawn.  

Amendment proposed: 232, in clause 136, page 118, line 41, at end insert— 

‘(12) The Secretary of State may make regulations to allow a penalty notice under this section to include a provision for the publication of the name and other particulars of those naming employers who do not pay the relevant sum as per the conditions of the notice.’—(Ian Murray.)

Question put, That the amendment be made. 

The Committee divided: Ayes 6, Noes 9. 

Division No. 25 ]  

AYES

NOES

Question accordingly negatived.  

Amendment proposed: 233, in clause 136, page 118, line 41, at end insert— 

‘(12) Any payments made under this section by the employer shall reduce the liability of the employer for the relevant sum prior to being allocated to any sums payable under the penalty notice.’—(Ian Murray.)

Question put, That the amendment be made. 

The Committee divided: Ayes 6, Noes 9. 

Division No. 26 ]  

AYES

NOES

Question accordingly negatived.  

Jo Swinson:  I beg to move amendment 28, in clause 136, page 119, line 3, leave out from ‘lies’ to end of line 5 and insert ‘to an employment tribunal.’ 

This amendment changes the venue of appeal against a penalty for the non-payment of an Employment Tribunal award or an ACAS conciliated settlement from the county court in England and Wales, or the sheriff in Scotland, to an employment tribunal.

The Chair:  With this it will be convenient to discuss Government amendment 29. 

Jo Swinson:  We have obviously had two lovely little Divisions. I hope that the hon. Member for Edinburgh South will not consider that I have been “2 Faced”, if we want to continue with the Louise Redknapp song title references, in welcoming the spirit of amendment 232 but voting against it. I think that I put it clearly on the record that I did not think that legislation was needed in order to create a naming-and-shaming scheme. I am certainly considering the substance of the proposal, but that is the reason why I did not feel that amendment 232 needed support. I do not know whether anyone else will be able to shoehorn any Louise Redknapp song references into the rest of the debate. Perhaps they will have to check with the hon. Member for Hartlepool for the entire catalogue if he is such a fan. 

Clause 136, as we have discussed, is about issuing a penalty to employers who fail to pay an employment tribunal award. Of course, as with any penalty, the employer will have the right to appeal if they consider that it has been issued in error. Government amendments 28 and 29 are designed to change the venue where such appeals will be heard. 

Currently, the Bill suggests that the penalty appeals should be heard in the county court in England and Wales and by the sheriff in Scotland. However, we have undertaken further consideration since the Bill was introduced and have decided that the employment tribunal would be a more suitable venue. The hon. Member for Edinburgh South asked why that was. The county court and sheriff court are, unfortunately, much more sensible

in terms of debt recovery, but this appeal is against the administrative process—the issuing of a financial penalty—which is why the employment tribunal is more sensible as a location for it. Of course, that is also consistent with the way in which appeals against a penalty for non-payment of the national minimum wage are heard. For those reasons, the change makes sense. Of course, because it is the employment tribunal, the fee, a type A fee, will be payable in the same way as would apply to an employer in relation to a national minimum wage notice of underpayment. 

Those are the reasons why we have made the change. I hope that the Committee will support the change, which is sensible and consistent with the other appeal on penalties. 

Amendment 28 agreed to.  

Amendment made: 29, in clause 136, page 119, line 14, leave out 

‘the county court or sheriff’

and insert ‘an employment tribunal’.—(Jo Swinson.)  

This amendment is consequential on amendment 28.

Clause 136, as amended, ordered to stand part of the Bill.  

Clause 137 ordered to stand part of the Bill.  

Ordered, That further consideration be now adjourned. —(Mel Stride.)  

3.55 pm 

Adjourned till Thursday 6 November at half-past Eleven o’clock.  

Written evidence reported to the House 

SB 61 Pre-school Learning Alliance 

SB 62 Justice for Licensees 

SB 63 Mr Ron Piper and Miss E. Piper 

SB 64 Fair Pint – supplementary 

SB 65 Paul Crossman 

SB 66 Luke Howell 

SB 67 Public Concern at Work 

SB 68 Charity Law Associates 

SB 69 Alan Yorke