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Lord Hodgson of Astley Abbotts: My Lords, I am grateful to the Minister for taking us so clearly through this complex but important area of social policy.

The regulations bring us back to the familiar ground covered when we discussed the statutory maternity, paternity and adoption pay regulations which the noble Lord, Lord McIntosh, introduced into the House a month ago. As I said then, it is hard to argue—one should not argue—against regulations which encourage better relationships between parents and children; which help parents care better for disabled children; and which encourage a good life/work balance. It was not entirely clear from the paperwork and I was pleased that the Minister confirmed that these regulations will apply to adopted and foster children as well.

It may be hard, particularly at this season of the year, but one has to say that these desirable objectives come with costs attached, both direct financial costs and through an impact on competitiveness.

The regulatory impact assessment estimates one-off start up costs of £34 million, of which about 80 per cent, nearly £28 million, will be borne by businesses with fewer than 20 employees. The calculation is based on one person per business spending one hour to become familiar with the legislation and then implementing it. I came cold to this legislation, and I must say you would need to be jolly good to read, assess and implement it after reading it for one hour. The regulatory impact assessment of one hour per firm is low; I calculate it is out by a factor of two or three.

As to complexity, the regulations will come into force in April, as will maternity and parental leave regulations and statutory paternity and adoption pay regulations. Firms will be kept busy getting to grips with the regulations, which cover entirely new areas. To make this tolerable, good guidance will need to be made available early and well in advance of the impact day. In the various discussions we have had during the passage of legislation through the House—most recently on the Licensing Bill—the guidance and regulations have not always been produced in as timely a fashion as one might wish.

To be useful, particularly to smaller firms, the guidance will need to be detailed, with works examples, templates and forms for all aspects of the process.

In particular, I wonder whether the Minister would consider the advantage of an approach requiring that, for an application to be valid under the regulations, it should have to be made on a statutory form. This would ensure that all the relevant information was

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properly detailed at the first stage of the process. While "best practice" could offer a steer to employees and employers in providing the relevant information, unless the use of a form is mandatory, there is a greater risk of the employee overlooking some of the required information and therefore submitting an invalid application. This would create a "false start" to the process, which is undesirable for both parties. The use of a statutory form would also give employers a clear signal that the request is being made under the legal right to request flexible working and that they are obliged to take appropriate steps without delay. This approach is widely espoused by the Engineering Employers' Federation. I hope that the Minister will consider it sympathetically.

Secondly, in the guidance notes there needs to be a good explanation of what amounts to a "sufficient" explanation for refusal in Regulation 5(b)(ii). We have some doubts as to whether it is right to leave this definition, which is central to the objective of the legislation, to guidance. There is an argument for including it in the regulation. Some comments from the Minister when he replies would be most welcome.

Perhaps I may give a "nitty-gritty" example. A firm of, say, 150 employees might have a human resources department of three people, two of whom might be eligible for flexible working, having young children. One of two makes an application for flexible working arrangements permitting him or her to take Friday afternoons off in pursuance of the objective of this legislation. The second eligible member of staff, seeing the success of this agreement, asks for the same Friday arrangements. Will it be "sufficient explanation" that the firm does not wish to have its HR department denuded of resources at that time?

Or alternatively, a person joins the firm who has a child under six, making him or her eligible for flexible working. At no time during the recruitment process is any mention made of a wish for flexible working. How soon after joining, without any change in personal circumstances—clearly if an employee is going to have a baby, that is another matter—can a person then request a flexible working arrangement?

I do not worry so much about this provision in the case of large firms, which have cover available; or even in the case of micro-firms, where flexible working is almost always a way of life. It is the medium-sized firms that will be hit hardest by these regulations. They will be struggling with the problems of growth, and we need to give them all the help and encouragement that we can.

The Minister has heard me talk about the desirability of this country encouraging the emergence of world-class companies—and I mean world-class, not national champions, before he chides me again on the point. These potential world-class competitors need simple, clear guidance so that they can focus their attention on their economic success, to their benefit and to that of the country.

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Will the Minister comment on the unfortunate cases where people, sadly, take advantage of the regulations? If, for example, a person who has made a flexible working arrangement is found to have taken a second job during the period in which he or she is enjoying flexible working, would that be grounds for dismissal?

Finally, as I understand it from the debate in another place, the Government plan to review the situation and have specified three measures of success: increased incidence of flexible working; increased employment of parents with young children; and increased satisfaction with the work/life balance—the last is particularly hard to measure. Does the Minister agree that these are slightly narrow and that they do not sufficiently reflect genuine concerns among firms as to the real, as opposed to expected, costs of the regulations?

Therefore, will the Minister make a special study of the impact of the regulations on firms of, say, five to 200 employees? Will he review the number and percentage of cases going to industrial tribunals to see whether the regulatory impact assessment predictions are correct? Will he open a dedicated channel through which firms could report problems with the implementation of the regulations? In answer to recent Questions in the House, the Minister placed stress on the importance of the DTI Strategy Unit and the valuable role it plays. Perhaps he could undertake to follow up the impact of the regulations.

As I explained in my opening remarks, we do not oppose the regulations, for they are well intentioned. But they must be seen in the context of the fact that they are one more burden to add to the parental leave directive, the works council directive, the part-time work directive, the directive on the burden of proof in sex discrimination cases and the fixed term employee directive; to say nothing of the impending agency workers directive.

As the Minister knows as well as anybody, the world does not owe this country a living; therefore, we must keep a careful eye on the balance being struck.

4.15 p.m.

Lord Roper: My Lords, from these Benches we welcome the regulations, which we see as a consequence of the Employment Act 2002. We in your Lordships' House, in particular, ought to welcome them because the House is probably the ultimate example of flexible working. We should, therefore, have an interest in welcoming the extension of the benefits we enjoy to others. I hope that the Minister will accept in the spirit of the present season that it is surprising, given the interest that some of his noble friends paid to these matters when the Employment Act 2002 was in Grand Committee and on Report, that they are not here today to welcome the implementation of the proposals. I am sure that they have other important matters to ensure that on this occasion they are a good example of flexible working.

The regulations seem to be a well balanced example of the implementation of something that the House has already decided should be carried out. Of course,

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as the noble Lord, Lord Hodgson, pointed out, there will be costs. As he said, it is important that they be monitored, and, if there are problems, the department should try to rectify them. We believe that this is an important step forward and welcome the regulations.

Lord Sainsbury of Turville: My Lords, I thank noble Lords for their comments. In answer to the noble Lord, Lord Hodgson, there are costs, but there are also very considerable benefits, some of which it is difficult to quantify in terms of reductions in recruitment costs, improvements in the labour supply, or employees' work satisfaction. We must see that there are considerable benefits, as I hope I illustrated in my opening remarks.

As regards the ability of companies to deal with the regulations, the law that the regulations implement has been known about for a long time. There is still plenty of time for businesses to come to terms with them. We are currently testing the guidance with employers.

Lord Hodgson of Astley Abbotts: My Lords, I thank the Minister for giving way. The problem is the detail, not the law. The regulations come into force in April, which is 16 weeks from the end of Christmas. Is that fair? It is not a long time for a smaller business, particularly if we do not yet have the detail. I understand the law; it is the detail that counts.

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