Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 61 - 79)



  Q61  Chairman: 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 Policy Unit.

  Miss Goodman: I am Lucie Goodman and I am the Policy Development Officer for Employment Issues in the Federation of Small Businesses.

  Q62  Chairman: 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.

  Q63  Chairman: That is right. We have been looking at the papers that you supplied to us—thank you very much for those—and 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 principles—seven sounds a lot but they will only take half a minute each—being 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.

  Q64  Chairman: 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 to us.

  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 20.

  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.

  Q74  Chairman: Can you remind us what the general theory is of the number of employees you need to sustain somebody who does nothing except management?

  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 usually.

  Q75  Chairman: 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, thank you.

  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.

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