Examination of Witnesses (Questions 61
THURSDAY 19 APRIL 2007
TYRRELL QC AND
Good morning Mr Tyrrell and Mr Goodman and thank you very much
for coming to speak with us today. As you know, the main subject
of today's evidence session is the Commission's labour law Green
Paper. Thank you also for the written evidence, which we have
in our pack here. Employment interests are of great interest to
the Committee and a couple of years ago we published a report
on the Working Time Directive. Our inquiry into the labour law
Green Paper is therefore a good opportunity for us to pull together
evidence which will bring our views on the impact of legislation
in the labour market up to date and obviously enable us to advise
Government as to what we think on these matters. I am sure I do
not need to introduce Professor John Philpott to you; you have
probably been talking to each other from time to time before.
He is our specialist adviser for this inquiry and of course we
are extremely lucky to have him. We have an hour for this session,
it is open to the public and it will be recorded for public broadcasting
or webcasting. A verbatim transcript will be taken of the evidence
as well and this will be put into the printed record as part of
our report and also put onto the parliamentary website. You will
be sent a copy of that record a few days after this conversation
and if you feel that anything needs to be corrected, that you
have perhaps not clearly explained what you wanted to explain
or there has been some misunderstanding, do not hesitate to supply
us with that correction, but we would be grateful if you did it
as soon as possible. If at the end of the interview you still
feel that you would like to submit supplementary evidence to us,
that of course is always very welcome. We would not want lose
a point that you wanted to make simply because we had failed to
cover it in our conversation. The acoustics in this room, thank
goodness, are good unlike some of the rooms in this Palace; nevertheless,
for the benefit of the recording and for the taking of the note,
we would be grateful if you could speak as clearly as possible.
Could you start by stating your names and official titles for
the record? After that, if you wish to make an opening statement,
it is up to you; otherwise we shall go straight through the questions.
I hope that is all clear.
Mr Tyrrell: My name is Alan Tyrrell and I am
the Chairman of the Federation of Small Businesses' European Law
Miss Goodman: I am Lucie Goodman and I am the
Policy Development Officer for Employment Issues in the Federation
of Small Businesses.
Do you wish to make an opening statement, or shall we go straight
into the questions?
Mr Tyrrell: I think we could go straight into
question one because it is such a wide-ranging question and it
enables me to set out a few principles as well.
That is right. We have been looking at the papers that you supplied
to usthank you very much for thoseand they indicate,
especially the press release of 22 January, the huge increase
in the number of calls on labour law issues which are received
by your helpline from your member businesses. The press release
states that the average business owner spends 28 hours per month
filling in government forms. It goes on to explain the economic
importance of the small businesses sector which I am sure everybody
in this room is entirely aware of. The suggestion is made that
red tape actually hampers the employment of more people. Could
you describe some of those difficult problems faced by small businesses
in this country in dealing with existing labour law? What role
do you think that employment law should usefully play in the UK?
What do you think is wrong with the present situation? That is
a very broad opening question so it is up to you.
Mr Tyrrell: May I first of all thank you very
much for inviting us to come to address you and to so many people
for giving their precious time to this meeting. I did read the
Working Time Directive report at the time and it gave us some
satisfaction and some confidence in coming today. As far as the
role of UK law in the UK is concerned, one can extend it equally
to the role of the European Union, certainly in terms of what
I am going to say. May I mention seven principlesseven
sounds a lot but they will only take half a minute eachbeing
the direction in which we feel the European Commission ought to
be going and indeed the UK Government could also usefully go.
The first one I call recognition. As you have already said, the
contribution of small businesses to the economies of the European
Union is massive, but it is barely recognised; the position of
small business employers has no special status, but it really
ought to have. The small businessman is a self-sufficient worker
himself, but he also provides, with his colleagues, around 75
million jobs in the European Union and a comparative number in
the United Kingdom. Finally, the small businesses of today are
the big businesses of tomorrow. For all those reasons, the small
business employer does deserve special recognition which he does
not get anywhere. My next heading in my set of principles is proportionality.
What is proportionate for a large business is not proportionate
for a small business. In a small business cash flow worries are
forever present; that is perhaps the main difference of all. Similarly
between the large business and the small business, large business
has its human resources department, it has funds to back up its
research and so on and so forth, small business has not except
of course through our own modest efforts in the Federation of
Small Businesses. The European Union, and I am afraid also usually
the UK Government, apply the one-size-fits-all principle, but
there really is no comparison between the small business employer
of typically under five employees and the international conglomerate
and they should not receive necessarily the same treatment. My
third principle is freedom of contract. It is easy to lose sight
of the fact that every regulation which replaces a negotiated
contractual term with a compulsory statutory term reduces the
flexibility of the labour market. In small businesses each contract
of employment usually is, and traditionally has been, tailored
to the particular individual concerned. Successively over many
years now most of the terms of such a contract are dictated by
statute and they are the same both for an employee of a very substantial
international business as they are for one in a small business.
My fourth principle is that administration is a burden. All these
regulations require administering. Time is money. The time spent
on administration is reducing the productivity of the business.
It reduces expansion and development, all the other activities
that go into making a business successful take second place. The
fifth principle is that small businesses should have their own
institutionalised system for consultation. Large businesses have
it, certainly in Europe through the Social Dialogue, small businesses
do not have it anywhere. It is true that in the UK we have fairly
easy access to senior civil servants dealing with our problems,
but that is not the same as having an institutionalised system
for consultation. The sixth one is subsidiarity. The principles
should be applied and it gets scant attention in the Commission's
Green Paper, indeed proportionality gets scant attention as well.
We consider that each Member State is the organisation best suited
to the needs of its small business employers and therefore directly
small business employees, so we would regard subsidiarity as an
important principle which commands a lot of lip service usually
but very little practical result. Finally: legislation. Small
business employers are also workers. They should be treated as
workers as well as employers and employment law legislation should
be legislation that encourages small businesses to employ people,
not discourages them. Those are the seven principles which indicate
a direction to move in; it does not mean to say one has to go
to extremes for any of these, but that is the direction. What
is wrong? It is the sheer volume of regulation that is wrong.
One can take any particular statute, any particular regulation
and say it is not doing much damage. A good example is maternity
leave. It is estimated that a typical small business will only
have this problem once every five years with only four or five
employees, but when it does crop up, it is an absolutely massive
crisis, or can be. It takes about two days for the small business
employer to find out what he or she ought to do about it and that
comes from a precise case that we had a few months ago. One might
say that the maternity leave problem is a rare one, but when you
add that kind of problem to all the other problems that occur
once every five years, it is a massive one and it means reorganising
the entire workforce in a small business and probably spending
quite a lot of money employing a temp or an additional part-timer.
So there is that and then there is the complexity of the legislation.
The regulation attempts to cover every eventuality. Of course
it does not, especially in Europe where there are so many possible
eventualities that a vast mass of problems are not foreseen, but
it ought to be possible for a small businessman to pick up the
regulation, look at it, see what it means and implement it. However,
as our helpline results show, it does not work like that. There
really is a massive number and when suggestions are made, as they
are from time to time, that small businesses do not bother or
do not worry about regulation and press on regardless, that is
certainly not so with our members as one sees from the care and
effort. Each one of these 70,000-odd calls that are made each
year has arisen because a problem has arisen and the problem needs
to be solved and an employer has to spend time trying to solve
it, one of which is getting onto the helpline but that is not
the end of the matter because after that he has to implement the
helpline's advice. There is no adequate focus, no direction about
UK employment law. It is all regulation or statute after statute
in isolation because somebody has thought the time is right to
deal with what might be a very minor problem, but there is no
overall principle involved or ethos or anything; it is very much
a "What shall we do next?" kind of approach. That is
particularly so in our current problem with holiday leave, which
I shall be dealing with in answer to another question later on.
Small business employers are geese that lay the golden eggs, they
need special attention and at the moment what is wrong is that
they do not get it and the one-size-fits-all principle rules the
day. I am sure I have left points uncovered in those remarks but
you will direct me to them.
Thank you for that. It certainly took me back to my days at the
National Economic Development Office where I used to listen to
very similar arguments and that is a very long time ago, so you
may be right that not enough has changed in the intervening period.
Can you give us any direct evidence which would show that if smaller
firms had fewer labour law requirements, they would be able to
increase the number of people they could employ? That is one of
your theses, as it were, in the evidence that you have written
Mr Tyrrell: Yes, it is a very important one.
Lucie has extracts from the research survey here.
Miss Goodman: We conducted a survey in August
2006 and the findings of this employment survey were that of the
total sample, 65 per cent had employees while 35 per cent did
not. When the FSB asked why they did not employ, 44 per cent of
that group of respondents said the reason was the volume of employment
legislation, the complexity of employment legislation and the
overall burden of red tape and the fact that employees are considered
too great a business risk. In other words, they would create more
jobs, if they did not feel threatened by regulation.
Q65 Baroness Morgan of Huyton:
How large was the survey?
Miss Goodman: It was about 2,500.
Q66 Baroness Morgan of Huyton:
So 35 per cent of 2,500.
Miss Goodman: Yes.
Q67 Lord Moser:
Mr Tyrrell referred throughout to five and under. Is that what
we are talking about rather than medium-sized firms? I think some
of the papers referred to medium and it makes quite a difference
if we are talking about the very small.
Mr Tyrrell: The majority of our members are
micro businesses, under five; that is the majority, the biggest
single group. Under 20 is common; over 20 is far less common.
Q68 Lord Moser:
I was just wondering whether the concerns that you started with
and that we shall be discussing relate equally whether it is four
people or 30 people.
Mr Tyrrell: They apply equally to all under
Q69 Lord Wade of Chorlton:
What I should like to do is just explore what you believe to be
the relationship between productivity and employment law. Clearly
from the paper the EU believe that it could be an issue, that
they could help to improve productivity through looking at the
labour law and I wondered what experience you had and what your
thoughts were on the relationship between productivity, economic
development and labour law?
Mr Tyrrell: It is a question of time and resources,
the figure of 28 hours a month being typical in the research that
took place in or shortly before 2004 and we are proposing to update
it in our next survey. It does not matter whether it is 28 hours
or 20 or 35, it is all time spent on administering regulation
which could be better spent in developing the business.
Q70 Lord Wade of Chorlton:
Just looking at a rather different issue than that, generally
speaking we define our productivity level as a relationship between
output and cost of input and clearly that varies throughout Europe.
Europe has suffered a little bit generally from low productivity
compared with the United States of America for example. I wondered
whether your research shows your members feel that they could
improve the productivity of their business as a result of labour
law, which is a slightly different issue from the amount of time
that they spend dealing with regulation. Evidence that we have
had here already suggests that there is not a relationship or
not a strong relationship between those two; there are other issues
that come in. I will give you my view: I think that investment
is a much more important issue on productivity than labour law.
However, I was wondering what you felt and what your members felt
about that issue?
Mr Tyrrell: Our members feel that if they had
the opportunity to devote all their working hours to developing
their businesses, then that would certainly increase the productivity
of the business. We do not have any figures that show that; indeed
it is almost impossible to prove but it is very widely believed
in the small business world. Small business employees tend to
have more than one job in the firm. They will double up, being
a warehouseman in the morning and a van driver in the afternoon,
to give one kind of example. If you have a small number of employees,
you expect them to be ambidextrous. The labour law reduces that
ability to be flexible with one's employees.
Q71 Baroness Morgan of Huyton:
I do not quite follow that argument actually. Can you explain
to me which elements of labour law currently would stop what you
have described being possible?
Mr Tyrrell: The general realisation that an
employer cannot just switch an employee from one job to another
without running a risk of raising a grievance of an unfair dismissal
if the employee is not satisfied with the new jobs that he is
being given. That is the kind of area where you find a problem.
Q72 Lord Trefgarne:
I have a bit of experience of that. The problem is that where
nowadays an employee is required to have a contract of employment
that contract of employment will set out what his duties are and
if his employer wants briefly change those duties, the employee
could challenge that.
Mr Tyrrell: Exactly so; yes.
Q73 Baroness Neuberger:
Clearly that is so if an employee has a contract and a job description
and so on but surely where an employer wants to switch an employee
into something else it is normally done by consultation whether
the employer is a large employer or a small employer. Does it
really make an enormous difference what size the employer is?
I just cannot quite follow the argument, because I think it is
a much wider point than whether the business is large or small.
Mr Tyrrell: It is the flexibility that matters
and the deterrent on an employer to risk anything that is new
or different is a real one and that will doubtless be where he
will get in touch with the helpline and ask our legal advisers
whether he can or not.
Can you remind us what the general theory is of the number of
employees you need to sustain somebody who does nothing except
Mr Tyrrell: Anecdotally it is accepted within
the Federation that if you employ over ten, then you have to have
a specialist member of staff looking after personnel matters.
Under 10 the owner tries to do it himself and gets away with it
Right, so there is a whole mass of concerns which needs at least
part of one specialist time once you have 10 employees.
Mr Tyrrell: Yes.
Q76 Baroness Howarth of Breckland:
Does your Federation encourage small businesses to work together
when they are reaching that stage? My experience is in the non-profit
sector, the charity sector, which are small businesses. They have
to have all the same elements and when they are very small they
also cannot employ HR specialists, but often latch into other
organisations and share expertise, sometimes pro bono,
sometimes by paying. Does your organisation encourage that kind
of sharing of expertise across businesses?
Mr Tyrrell: No, I think not. As far as our members
are concerned, they will all be in branches and they will consort
together at networking evenings and what have you and we have
publications that draw their attention to new legislation as it
is coming or likely to come and give business advice in those
articles to help them. That is as far as it goes.
Q77 Lord Wade of Chorlton:
I would make the point that clearly from the size of the economy
that the small business sector dominates the productivity of it
is an important part of our total economy. Quite clearly your
level of productivity and how you can convert the skills that
you have in the small business sector into profitable activities
is very important and my experience is that small businesses find
it very difficult to move out of that small business sector because
they cannot reach that level of income and profitability and efficiency
which enables them to raise the money for the next stage. So productivity
levels in small businesses are a very important issue and it would
be very interesting at some time to try to analyse much more fully
how you could increase the productivity of your members in that
way. Overall it would give them a much greater slice of the economy
and a greater opportunity to grow.
Mr Tyrrell: A very interesting position you
have set out there. I would like to consult with some of my colleagues
on the other committees, because it is not only a labour law problem
there and perhaps we could write in a reply to that question.
Chairman: That would be very useful,
Q78 Earl of Dundee:
We know that the Commission have a plan to consult social partners
about the process of forming EU labour law legislation. We therefore
expect the Commission to consult small businesses, but does it?
Even if it might do, does the Commission properly take the views
of small businesses into account?
Mr Tyrrell: No. There is no system for consulting
small businesses. As far as the individual Commission officials
are concerned, we have found them open, accessible and willing
to talk. The onus has to be on us of course to make the appointment
to discuss the problem but they will respond to that. As far as
receiving any composite representations from small business as
a whole is concerned, no, they do not get it. They will only consult
formally with European small business associations not with national
ones. We are by far the biggest. Most of the other countries have
fairly little small business organisations, so as far as we are
concerned, we found it very difficult to get through to the Commission
through the European Small Business Alliance, of which we are
a member. The other small business organisation in Europe is separated
from our own because it is an organisation which has compulsory
membership in the Member States. For example, in Germany you have
to belong to a chamber and belonging to a chamber means that the
union of chambers have a massive number of self-employed people
on their books, but in fact, they are there because they have
to be and their organisation is very subservient to the government
of the day because they are funded. That is the Commission's position.
That organisation to which I have just been referring, UEAPME
actually took the Commission to the European Court of Justice
about three years ago now, claiming that they ought to have a
seat on the Social Dialogue. The Court of Justice ruled against
them, not on the merits I am sure, but on the law. So the European
Employers' Organisation offered them a seat, one of their places,
on the Social Dialogue which is now occupied by this organisation
I have just been referring to, but with a condition attached,
namely that they would vote as the Employers' Organisation directed
them. That is really as near as one comes to representation in
Europe. We feel strongly and have been pressing for a long time
now for small businesses to have their own institution in Europe,
one which we as a UK organisation could ourselves join and would
be entitled to consult on its status which would mean that there
would be formal meetings with a Commissioner responsible, at least
twice a year, where a programme of potential work would be laid
out and acted upon with a secretariat. The Social Dialogue has
all those things, that is the two sides of industry, which is
a phrase which is a complete anathema to us because there are
not two sides of industry, as we know, there are many more; at
least three. That is where it stands at the moment. A lot of the
social legislation that comes out of Europe is born in the Social
Dialogue of the European trade unions and the European Employers'
Organisation. They meet regularly, they have their secretariat
and they work to a particular programme. For example, at the moment
they have just embarked on a new programme for the next two years
and are concentrating on undeclared work, what we would call black
market work, and they are going to come forward with proposals
for Member States to deal with the black market problem. We feel
quite strongly that the black market victims are our members who
are bitterly opposed to black market practitioners because our
members do abide by the law and feel that they are being taken
for a ride when the black-marketeers get away with it. We think
that undeclared work is very much a small business problem, but
this work is going on without any consultation with us and without
any representation of us.
Q79 Earl of Dundee:
How do you see the role of the FSB developing in Europe? The FSB
is already much respected in Europe. You mentioned the existing
plan for an institution. Perhaps there are further ideas. For
example, how might you best help your sister bodies in Europe
so that the Commission and EU does not ride rough shod over the
interests of small businesses in Europe quite as easily as they
may now do.
Mr Tyrrell: We do play an active part in the
affairs of ESBA, the European Small Business Alliance and the
last chairman, Brian Prime, was a member of our policy committee
and the new chairman is also a member of our policy committee
and they are elected by the small business organisations of half
a dozen Member States. They have a full-time person in Brussels
to deal with their affairs and they have put in their own answer
to the Commission's Green Paper. We ourselves realised, perhaps
a little late in the day, but realised that to make any real impact
in Europe, you would have to get your ideas in before the publication
of the document, setting out the direction. In order to cope with
that one, we have ourselves opened an office in Brussels with
a full-time employee working in Brussels whose main job it is
to find out through talks with Commission officials what is going
to be happening and to get an opportunity for our committee chairmen,
depending on what kind of area of law it is, to meet with the
Commission officials who are thinking of producing some new statement,
recommendation, directive, regulation or whatever. It is important,
but enormously difficult. I was on the receiving end of that at
one time in my career, as a Member of the European Parliament
and I know how difficult it is even for the MEPs. It is enormously
difficult to get anything done in Europe because the whole thing
is enormously big. We have a much better relationship with the
MEPs than we do with the Commission.
Lord Trefgarne: May I say that I think
representation of small businesses is a crucially important point.
It is the officials in the Commission who are the problem. I once
took a mission of small businesses to see Commissioner Bangemann
when he was in that role and he could not have been more helpful;
indeed in our very presence he rounded on his officials in the
most vitriolic terms for failing to brief him adequately on the
problems that we were bringing to his notice and the matter that
we complained about was swiftly corrected. The moral is to ignore
the officials if you can and get up to the commissioners themselves.
I find that the British ambassador to the EU is always willing
to arrange a meeting for somebody like yourself with the commissioner
himself and not the wretched officials who will just fob you off.
Chairman: You have probably heard some
good advice there based on experience.