Examination of Witnesses (Questions 20
- 34)
THURSDAY 22 MARCH 2007
PROFESSOR LEN
SHACKLETON AND
MR NIGEL
MEAGER
Q20 Earl of Dundee:
In the UK's case, and may be incorrectly in the cases of many
other others too. If the Commission wants to tackle segmentation,
what should it do instead?
Mr Meager: I suppose I should like to see a
focus on skills and life-long learning, which everybody agrees
actually is a crucial part of that picture, and perhaps some of
the barriers and disadvantages which are not to do with skills
faced by particular groups in the workforce. It is childcare for
lone parents, it is attitudinal and physical barriers for disabled
people et cetera. There are several. It is skills and discrimination
for certain groups of black and minority ethnic groups and so
on; specific barriers for specific groups. Much more can be done
on the segmentation problem off the terrain of labour law.
Q21 Lord Trefgarne:
I am not sure whether I am asking my question in the right place,
but it does seem to be that these proposals seem to lump all employers
together, large and small. I am very anxious that we should be
considering carefully how the effect of these recommendations
and suggestions or indeed the effect of existing provisions impact
more or less on small businesses which are, as far as our economy
is concerned at least, a crucial part of it. I wonder what you
think about that.
Professor Shackleton: I could not agree more.
I was hoping to get an opportunity to say something on those lines.
In the earlier discussion we were having about investment and
productivity those sorts of issues tended to be associated with
large firms. You have to consider the impact of labour law on
three areas: one is the public sector, which is already very highly
over-protected, way beyond what national labour law legislation
says; second, large companies; and third, as you quite rightly
point out, the small business sector. Trying to set up a business,
trying to make a business grow, is an extremely difficult thing
to do. You need to focus on your market, on your customers and
what we do not need to do is have increasing restrictions on small
businesses so that they are concentrating more on that kind of
thing than they are on their core business. It is interesting
that even Germany has recognised this in recent years and as part
of the Hartz reforms businesses with 10 or fewer full-time equivalent
people are actually exempted from some of the employment protection
legislation which is very strong in Germany. That is very important
to emphasise.
Lord Trefgarne: We are going to take
evidence from the small business sector specifically later in
our inquiry, but thank you for that.
Chairman: Thank you; that was most useful.
Now we are on to temporary agency workers.
Q22 Baroness Gale:
My question relates to temporary agency workers. What is your
view on the need for the proposed EU Directive on minimum standards
for the temporary agency workers and who should be regarded as
the legal employer of the temporary agency workers? Should it
be the agency or the client employer?
Professor Shackleton: As Mr Meager
pointed out a little bit earlier on, the UK has one of the highest
proportions of temporary agency workers in the European Union,
though not a huge number. The figures are actually rather difficult
to interpret, but probably around two per cent of employment,
something like that, at any one time, which is much higher than
many places in continental Europe; indeed in some continental
European countries agency work was actually illegal until about
10 or 15 years ago, in Greece for example and Italy. We have a
tradition, as does the Netherlands, of using agency workers and
this tradition is not always fully understood by some of our continental
neighbours. Agency work is not growing rapidly in the UK. It has
grown more rapidly in continental Europe because there it may
be being seen as an alternative to restrictive permanent employment
legislation. That is not the case in the UK. In the UK there is
a long-standing use of agency workers in a range of well-known
fields like office work and so forth. Incidentally, the Government
is a major user of temp agencies as some of your witnesses will
no doubt tell you, if you ask them a similar question on that.
There is plenty of evidence that a high proportion of workers
with temp agencies do actually value the flexibility of the work.
It tends to be a particular sub-set of the workforce which uses
agencies and they find it a useful way of doing things. Over time
people do migrate from temporary to permanent work to a much greater
extent in the UK than they do in continental Europe, so the idea
that temp agencies are part of a problem in some sense is wrong;
they are actually evidence of the flexibility of the UK labour
market and they have valuable benefits to both employers and employees.
Your legal question was about who should be regarded as the employer
of agency workers. This is not a legal opinion but a commonsensical
view suggests to me that if you are employed by an agency, you
are employed by that agency and you are not employed by the firm
you happen to be working with for variable periods of time. Clearly
this can get ludicrous if somebody has been working for a single
employer for two or three years or something and then there may
well be a case for doing something about that, but the default
position for me should surely be that the agency itself is the
employer.
Q23 Baroness Gale:
We are all familiar with the concept of temping for office workers
and I know for many women it is really a good way of working because
they can take time off when they want to and so on and that seems
to be quite a long tradition in our country. Would you say that
agency working now has developed in other fields? I am thinking
of people who drive heavy goods vehicles for example who will
register with an agency and for them the position might not be
as good because they are waiting at the end of the phone to see
whether they have work today and they may have two days' work
this week and one day's work next week. From what I can see, they
have no protection whatsoever and they are just hoping they will
have work. I cannot see that that is good for the employee looking
for a job, but it must be beneficial to the employer because they
can employ staff as they wish and if they do not have much work
on tomorrow, they do not have to have anybody working for them.
I am thinking of the protection of these people, mainly because
they cannot get a permanent job.
Professor Shackleton: In the UK people tend
to move out of temporary work fairly quickly. To go back to your
example here; if a company only has work for a driver one day
a week, what is there to suggest that there will be further work
if they are not allowed to employ a temporary worker on that basis?
In what way will extra work be created? What may happen is that
the firm will simply not employ anybody and there will be a job
opportunity lost. That is always the problem with this sort of
interference with a free contractual arrangement. It goes back
to the small businesses we spoke of: the kind of firm which only
wants to employ a driver one day a week is likely to be a small
firm not Tesco's; they are not doing it on that kind of scale.
Q24 Baroness Gale:
In this EU Directive then on minimum standards, how could you
build in standards for these people?
Professor Shackleton: Of course temporary agency
workers are already protected in many ways in terms of minimum
wages, in terms of paid holidays, in terms of sickness and maternity
pay and things like this. It is really a question of just extending
some of these things a little bit further to give full employee
status rather than worker status. Because I am doubtful about
whether extra permanent jobs would be created, this is probably
not a necessary thing to do. I would leave it at that.
Mr Meager: It is a very difficult question.
You get very different views on both sides of the equation. I
am sure if you talk to the TUC, they will tell you there is massive
exploitation of agency workers and give some heart-rending examples
which are undoubtedly true. If you talk to the CBI and the temporary
agencies, there will be dire warnings of massive job losses if
there is further restriction. As is usually the case, both sides
are probably overstating the case. There is very little evidence
on what the likely effect of the specific measures in the directive
would be in the UK. I would stress that we do have a low proportion
of temporary workers of any sort in the UK workforce. What is
also true is that among that low proportion a higher than average
proportion is through agencies, but that is a small proportion
of the UK labour market and temporary work generally is not growing.
Again, a bit like Professor Shackleton taking a commonsensical
perspective on this, my intuition is that we ought to be looking
at what is the legitimate motivation for the use of an agency
worker by an employer to meet a temporary need. On the one hand
it might be because of convenience, because of reducing the administrative
burden associated with just employing somebody for a short period
(because the agency does that). It might be because the agency
worker can provide specialist skills which are only going to be
required for a certain period or for a certain period of cover.
Those seem to me to be wholly legitimate reasons. On the other
hand it might be because there is a feeling actually that this
is a way of undercutting wages or getting away with inferior terms
and conditions than we might otherwise if we employed the people
directly, and that is probably a less legitimate reason. It seems
to me that employers should not object in principle to giving
the same rights to agency workers as they would to temporarily-employed
direct employees. That seems to me to be reasonable, although
it probably should depend to some extent on the length of the
assignment and who the employer is. If assignments tend to be
short with very rapid moves between one employer and another,
it seems to me entirely reasonable that the employer should be
the agency and the agency should determine the terms and conditions.
It is a moot point about whether those terms and conditions ought
to include some payment for downtime between assignments. My view
is that they probably should in general. One of the advantages
of being an agency is that presumably you have economies of scale,
you have lots of clients. If you are managing your business properly,
you ought to be able to place people fairly often and to build
into your prices some provision to cover them during downtime.
That is a lot fairer for the employee than being in this position
of uncertainty and having their income fluctuating in a wholly
unpredictable manner. In those circumstances their terms and conditions
could differ from the regular employees in the companies where
they are placed and who are working next to them, because terms
and conditions and wages do differ between companies. They might
actually be better. There are plenty of examples, particularly
in sectors like IT, where you get these highly paid people coming
in from agencies and it is the in-house employees who are looking
askance at these people coming in at twice their wages. If the
assignments are much, much longer, then it is much more reasonable
to argue that they should be treated rather similarly to the employees
that they are working alongside, even if they are still employed
by the agency. The key question is what the cut-off should be,
and intuitively to me it seems that when it starts to be months
rather than weeks or days then the question arises about why it
is being done and whether it would not be reasonable to regularise
the conditions. There is not, that I am aware of, very reliable
evidence for the UK on the duration of assignments across the
temporary agency sector and the actual differences that exist
between terms and conditions. We need a bit more work on that.
A common sense middle position between the two extremes that you
are likely to hear makes sense to me in this area.
Lord Trefgarne: A useful quarry for all
this would be the National Health Service I suspect where there
are agency nurses in huge numbers I believe. I do not know the
detail.
Q25 Chairman:
Yes, there certainly are. Do we know who employs them?
Professor Shackleton: It is mixed; it varies.
Sometimes it is the agency.
Mr Meager: May I just add a slight rider? If
we are moving towards harmonisation of terms and conditions between
agency workers and regular employees, it should work both ways.
For example, at the moment agency workers do not have to give
any notice, so if they are getting the terms and conditions they
should also have to have the normal notice period.
Chairman: That is an interesting point.
Thank you.
Q26 Baroness Greengross:
It really follows on very well from the last question. Do we need
to change definitions for some things because work is changing
so fast? Would some of these people in fact be better as self
employed and their tax position queried? Self-employed or employed
was also leading to my second question which is: what are we going
to do about the Working Time Directive? These are all things where
there is a muddle now because work has changed and the two legal
cases have really put us in a very difficult position as a country.
Professor Shackleton: The question about self-employment
is an important one. Even in yesterday's Budget there was the
implication that anybody who is self-employed is slightly dodgy
and trying to evade tax or whatever, whereas this is not really
the case. Being self-employed is for many people a very sensible
way to operate and it does create opportunities for employment
which would not exist otherwise. Not all relationships with employers
are permanent and there is no way efficiently that they should
be. There have to be opportunities for flexibility and self-employment
is one route there. There are issues about that. The other issue
is the Working Time Directive. The Working Time Directive is a
very peculiar business. It was originally pushed through as a
health and safety measure which of course at extreme levels it
would be. If people were working absolutely ridiculous hours,
then it would be. Nowadays in most developed countries, however,
you are not talking about extraordinarily long hours. The average
hours worked in many part of the EU are lower than in the UK,
but on the other hand there are countries like Australia, Japan
and New Zealand where working hours are considerably longer, with
no obvious ill effects. Mr Meager was talking about some of these
very interesting pieces of research recently, about attitudes
to work and so forth. It is interesting to note that in France
in 2005 the average full-time employee worked about 150 hours
fewer than in Britain, but both sickness and self-reported stress
appeared as higher in France than they did in the UK. This suggests
that this is not really a health and safety issue, it is something
to do with attitudes to work, it is to do with the social partners
and the way in which they want to see work controlled; rather
than it being a free choice between employer and employee they
want to see restrictions on things. We ought to continue to resist
application of common hours across Europe, but I have not much
optimism that we will in fact succeed in doing that.
Mr Meager: Briefly on this self-employment question,
this sort of debate is not a new one. For a very, very long time
there have been discussions about where the boundary should lie
between employee status and self-employed status and there has
always been an element of arbitrariness in how people are classified
for various tax, social security, employment law purposes and
indeed how people see themselves. I have looked at this quite
a lot over the years. For example, there was a massive growth
in self-employment in the 1980s and the Government at the time
did hail this resurgence of an enterprise culture and entrepreneurialism
and all the rest of it. However, when you actually looked at the
figures, a lot of it, if not all of it, was not that at all. It
was not self-employed entrepreneurs setting up exciting new profit-making
businesses, spotting a niche in the market: it was people, particularly
in the construction industry, being moved from employee to self-employed
status because there was a change in the structure of the industry
and the break-up of the big contracting firms and the use of labour-only
sub-contracts and so on. They were still doing the same jobs pretty
much for the same employers, but they were classified as self-employed
and it was advantageous certainly to the employer and sometimes
to the former employee for tax and social security purposes. It
had all sorts of other implications; not least it was a contribution
to the decline in apprenticeships in that sector, for which we
are still paying the price now. Sticking on this terrain, I have
to say at some stage during the 1990s, the Inland Revenue clamped
down very heavily on this sort of thing in the construction sector
and we saw a significant decline in construction sector self-employment
in the 1990s as a result. Shortly after that, they turned their
attention to similar perceived scams in IT contracting and similar
areas where they had noticed that large numbers of people suddenly
disappeared from working as employees in big companies and suddenly
reappeared working full time for the same company but as a self-employed
contractor. It is not clear to me that this is an issue for European
labour law. It seems to me that it is an issue for the UK authorities
to clarify the definition of self-employment, and actually although
it is complicated it is pretty clear already: you have to have
several clients, you have to exhibit some choice over when and
where you work, you have to provide your own tools and equipment
otherwise there will be a presumption that you are not really
self-employed, you are a dependent employee. Secondly, it is up
to the UK authorities to address scams and abuses when they occur.
I might also add that it happens in the other direction as well
because the assumption is that what we are talking about always
is people who ought to be employees who are being classified as
self-employed, but there are also genuinely self-employed people
who, as their businesses grow a bit, will get advice from an accountant
or somebody that what they ought to do is incorporate their company
and become employees of that company. They will still be a small
business person, they will still be as entrepreneurial and independent
and `self-employed-like' as they were previously but they now
have employee status. Again it is a matter for the authorities
to decide when that is reasonable and when it is not. It seems
to me that if there is an issue of segmentation and insiders,
outsiders and so on, which relates to self-employment, once again
it is not really to do with labour law. It is much more to do
with the social security system, pension system and related institutions.
The evidence suggests that the self-employed are a very polarised
group: quite a significant number do rather well, they run successful
businesses, they put some money aside for their pensions, they
save and they do well in later life. There is another significant
group who, particularly when you look at them later in life, and
there are studies which do this, are people who have either been
self-employed throughout their working life or have had significant
spells of self-employment during their working life, and once
you control, as Professor Shackleton would have us do, for all
of the other factors that you can, ceteris paribus, compared
with otherwise similar people who have only been employed they
are less likely to have a decent pension provision, they are less
likely to have savings put away and their risk of poverty in old
age is much greater. My view is that it is the case that we have
a more flexible labour market. More people these days experience
spells of self-employment during their working life than used
to be the case generations ago when it was a fairly segmented
part of the labour market, affecting skilled craftspeople, farmers,
certain people in the liberal professions, law and the like. Now
it is much more pervasive, so more people and different kinds
of people experience spells of self-employment during their working
lives. The question for me is how good the social security regulations
and the portability of pensions and access to social security
rights are. If I were worried about segmentation of excluded self-employed
people, I would not fiddle around with labour law I would address
these other questions.
Q27 Chairman:
Pension law and so on. Thank you. We are technically speaking
beyond our time, but I do not see a lot of people rising from
their seats. I wonder whether you could give us a little bit longer.
Is that a possibility for you or are you on your way to your next
engagement?
Mr Meager: I am very flexible.
Chairman: Lord Trefgarne, would you like
to ask your question? You have a question about good practice
in labour law in the United Kingdom. It might be quite useful
to get the answer to that question.
Q28 Lord Trefgarne:
We are, in forming our views on all of this, wondering where we
look for the best examples of good practice. Some will be here
in the UK as you have already indicated, but others may be elsewhere
and you seem to have waxed very eloquent on the Danish model for
example. I suppose we should assume that if we look at the new
members of the EU from the East, they are probably the least likely
source of good practice in this area.
Professor Shackleton: The UK's good practice
is largely in negative terms. Since the 1980s we have kept discussions
about labour law out of the hands of the social partners rather
than the way that they operate in continental Europe. Unions and
employers are consulted in the process of generating law in this
country, but they do not have the kind of powers to exercise control
over this that they do in many continental countries. I find the
notion of the social partners extremely pernicious. What they
are is not "the social partners", they are a bunch of
unions and a bunch of employers' associations and in large parts
of continental Europe unions are becoming totally unrepresentative
of the workforce. In France the unionisation rate is lower than
the United States but despite that something like 90 per cent
of wages are still collectively bargained and French unions have
very considerable veto power over legislation. If you look at
the employer side as well, this tends to be industry employer
associations and that is part of the old economy. We do not have
them in the UK as significant players these days because the labour
market has changed or the product market has changed for that
matter, whereas in continental Europe this group of social partners
also dominates. Things move extremely slowly when the social partners
are involved. That would be one negative thing in favour of the
British system. On the positive side, we do some quite good things
like, for example, the use of ACAS to try to conciliate before
employment tribunal cases, which is a very sensible arrangement
and better than is practised in many continental jurisdictions.
If you want examples of good practices from other countries, I
would flag up the very interesting thing which they have done
in Austria in recent years. I do not know whether people are aware
of this but instead of employers having to pay redundancy payments
or severance payments when people are dismissed, there is a tax
of 1.53 per cent of the payroll which is paid into an individual
account for workers. If they become redundant, they can use this
account to pay a severance payment or they can keep it in there
and indeed it serves as a form of retirement saving as well. What
this means is that, although the employer has in effect to pay
more, it takes away the risk from the employers' side, so the
employer is less inclined to worry about what he is taking on
when he takes on an extra worker because he is going to have great
difficulty in getting rid of them and in Austria that is no longer
the case. That is a very attractive model, not so much perhaps
in this country, where we do not have the problem on the same
scale, but it is certainly the kind of thing which you could think
about in the context of a number of continental European economies.
Q29 Baroness Morgan of Huyton:
Which is why presumably a lot of the continental European economies
have been obsessing about agency workers; they have been taking
on a lot of temporary workers because that is the only way round
the system.
Professor Shackleton: That is right.
Baroness Morgan of Huyton: In a sense
we are about to be affected, yet one could argue we are running
our own economy differently. In a sense it is being done because
of problems in Spain, rather than because of problems in the UK
economy.
Q30 Baroness Howarth of Breckland:
May I go back to flexibility and another question I wanted to
ask somewhere? It is to do with one of the other social partners,
and other regulators of course, who do have an effect on employment
patterns particularly in the social care setting. One of the advantages
of flexibility is that private companies at the moment are employing
Eastern European workers to do some social care without any training.
The equality issue here is the effect on the service delivery
and on those receiving service. How do we ensure that we have
the right kind of flexibility and the right kind of protection,
"flexicurity", but also the protection for the people
who are receiving, in public services particularly, those services
that can be developed, but are not always of the quality we might
want them to be?
Professor Shackleton: I can see there could
be an issue in that area but clearly it is for the profession
or for the regulators to impose service standards upon these areas;
it is not really a labour law issue.
Q31 Baroness Howarth of Breckland:
It is the other side of "flexicurity", is it not, the
training and the standards side of it?
Professor Shackleton: Yes.
Chairman: There certainly is a recognised
problem in the care of elderly people, let us say, just for one
example, where the staff is poorly paid, it rotates very quickly
so you cannot form relationships between inmates and people who
are looking after them. This leads to less good quality of care,
less care with feeding the patient. It is very, very well recognised;
anybody who has had a mother or an elderly relative in an old
person's home knows exactly what we are talking about. However,
you might be right, this is not so much labour law as standards
law, but there is such a competition to drive down the costs of
this particular kind of care which are heavy.
Baroness Howarth of Breckland: It links
into labour law.
Chairman: It does link into labour law.
Baroness Howarth of Breckland: It is
about security, about being flexible in new businesses, but the
private sector new businesses then undercut the voluntary and
public services in terms of payment so the whole thing does interrelate
into the quality of service the patients receive.
Q32 Chairman:
There are several different factors interrelating on that.
Professor Shackleton: There is a very high turnover
in the care sector generally, but it was not my impression that
the vast majority of employees in this area were on temporary
contracts. They are on permanent contracts, but simply a very
high turnover because they are so badly paid.
Chairman: They are so badly paid they
are forever trying to get a better rate.
Q33 Baroness Neuberger:
And they are very badly trained.
Professor Shackleton: One of the issues we have
not talked about at all is immigration. A positive feature of
the UK economy is that it has been open to immigration and this
has had beneficial effects. Gordon Brown two or three years back
raised his estimate of the sustainable rate of growth of GDP precisely
because of immigration. We have had a much better record on this
than many continental European countries.
Q34 Baroness Howarth of Breckland:
We still continue to pay care workers less because of immigration
and it is an issue how labour law or any regulation deals with
that.
Professor Shackleton: There are clearly problems
in the care sector; I do agree with that. It is a question of
how you diagnose the problem and this is something which Mr Meager
has been talking about in other contexts. What is the issue here?
Is it labour law or is it something rather different? That is
my view of it.
Chairman: It might be a combination of
all those factors, might it not, but perhaps the standards one
would be the most important one? How you get round that, I am
not quite sure because it is a question these days of who now
pays for the standards. The public sector's involvement in this
is now relatively small.
Baroness Morgan of Huyton: The public
purse's involvement is huge.
Chairman: The public purse's involvement
is huge, but are they getting value for the money they are investing?
We are going off our subject now. We have had a very interesting
morning. Baroness Morgan of Huyton was going to ask about the
advantages or disadvantages in EU legislation that ensured uniformity
of employment rights regardless of Member States. If you feel
there is something that you have not contributed that you wanted
to contribute on that particular question, we would be very happy
to hear from you, but we have had a very wide-ranging discussion.
If you do wish to add anything in writing, if you feel we did
not cover a subject particularly well, although you have been
extremely thorough, a written contribution from you would be extremely
welcome. Meanwhile, we all should thank you for a most fascinating
morning and, once again, a brilliant introduction to a new subject
or what is a relatively new subject, for the Committee working
as a whole together. Thank you very much for your presence here
and for all the help you have given us. I wish we could spend
more time with you, but I am sure you are both very busy.
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