Select Committee on European Union Minutes of Evidence

Examination of Witnesses (Questions 143 - 159)



  Q143  Chairman: Good morning, Minister, and welcome to our Committee, and also to Miss Whewell.

  Q144  Chairman: We are grateful to you for making the time to speak to us. I know you have got a busy schedule this morning and somebody is going to drag you away at the appropriate moment so that you can do your duty at Questions at 10.30. Thank you also for your written evidence, which we have in front of us. Employment issues, of course, are of great interest to this Committee and, you will remember, we did a report on the Working Time Directive a little while ago and so we are welcoming this Labour Law Green Paper as a way of coming once again to these issues. We have Professor Philpott, who I am sure you know, who is our specialist adviser for this inquiry. I am sure you have done this before and you know all the points I am going to make, but before we start I need to make a few housekeeping points. We have scheduled an hour for the session until 10.30. It is open to the public and it will be recorded for possible broadcasting or webcasting. A verbatim transcript will be taken and will be sent to you for your correction, if you could correct it as soon as possible. It will eventually be put into the public record in printed form and on a Parliamentary website. If you wish to submit supplementary evidence after the session to clarify or amplify any points made during your evidence or to answer questions which are not reached or fully treated today, that is most welcome. Quite a number of our witnesses find that a useful exercise from their point of view as well. It would be helpful if you could try to speak clearly so that the record that is made is as accurate as possible. Perhaps you could start by giving us, for the record, your names and your positions.

  Jim Fitzpatrick: Good morning. Thank you very much for the invitation. Jim Fitzpatrick, Parliamentary Secretary at the Department of Trade and Industry with responsibility for employment relations, postal services and Minister for London.

  Miss Whewell: I am Jane Whewell, and I am a director in the Employment Relations Directorate for the Department of Trade and Industry.

  Q145  Chairman: Would you like to make an opening statement, Mr Fitzpatrick?

  Jim Fitzpatrick: No, I think we have declined to do that, with greatest of respect, in order to make sure we can try and cover the questions that you have down; and that would suspect that anything that we would want to say will probably be included in our responses.

  Q146  Chairman: Excellent; thank you. Obviously labour law in the Member States is a mixture of domestic and EU-wide legislation and that mixture varies from Member State to Member State, and, in some countries, measures implemented not by legislation but through collective bargaining also play an important role. It will be valuable to have your view on the impact of labour law on the global competitiveness and productivity of UK business. What is your view of the extent to which global competitiveness and productivity has been helped or held back by the labour law that already exists in this country? Has the major part of that impact, if it is there at all, arisen from EU legislation or from domestic legislation?

  Jim Fitzpatrick: I am not sure how easy it is to quantify the impacts of labour law on productivity. I think what we can say over the past decade is that the UK economy has performed exceptionally well. Clearly, on record, we have increased our work force by two and a half million people since 1997 and we are graded highly by the World Bank as a good place to do business. We have introduced new rights and responsibilities on employers, rights for employees. We feel that we have got the balance about right. We clearly identify that there is a skills deficit, hence the Government's ambition to get 50 per cent of young people to university or further higher education. The Leitch Review and initiatives like Train to Gain identify a way forward in terms of upskilling. The impacts of labour law are difficult to quantify. We would, I guess, suspect it would be less than people may imagine.

  Q147  Chairman: Thank you. You have answered the second question in a way, because you have said that improving performance falls on investment and skills formation. Is that the way to tackle productivity, do you think, rather than a more rigid and rather differential attitude towards labour law? Also, what do you say in relation to the point made by one of our previous witnesses that the UK's relatively lower productivity record partly arises because a larger proportion of people here are able to find employment than in many other EU states; in other words full employment has not assisted with productivity?

  Jim Fitzpatrick: Full employment may assist with productivity, in their view, but it makes for a happier country, given that people have a better opportunity to have a decent quality of life. I think we are moving up the productivity league table. I think the gap between us and France and Germany has narrowed quite considerably in the last decade. We are now on a footing with the likes of Canada, Italy and others, and we feel that there has been an improvement in the productivity arena. Certainly a number of the new rights that we have introduced, like the right to request flexible working, seem to be producing evidence from companies which says that people are happier at work in those environments where they feel valued and that productivity goes up, absenteeism goes down, morale is higher and, therefore, the companies that have gone down the road of trying to create a work-life balance for their staff seem to be benefiting from that. So, I think, in general terms in respect of productivity, we are clearly improving our international position and domestically, in terms of whether people are producing more at work, I think the evidence, which, as I say, is starting to emerge, indicates that the balance which we are trying to introduce in terms of assisting people to get the right work-life balance for themselves and their families is having an impact on productivity and helping people as well as companies.

  Q148  Lord Wade of Chorlton: May I ask a supplementary to your first answer to the first question. You commented on the fact that we have got increased employment in this country and that globalisation is not going to affect us, but surely you would agree that we are becoming more and more dependent on imported manufacturing goods. We have transferred a lot of our manufacturing employment abroad, and the increase in employment in this country has really been service and social benefit jobs and all these other things in society rather than actual wealth creating jobs. Would you agree with that?

  Jim Fitzpatrick: I am not convinced that we have replaced the traditional manufacturing jobs from the industrial sector with non wealth-creating jobs. I think we are creating wealth in different ways in the UK. It is clear that we cannot compete with the wages levels that are being offered in China, India and emerging nations. Where we are still ahead is as the knowledge economy, in the service sector, tourism is growing, and in other industries which are bringing in good revenue, but if we are not careful we are not going to stay ahead in those areas given the millions of graduates which are being turned out from the universities in India, China and in other emerging countries. So, if we do not upskill, if we do not encourage more young people to go to university, the fear, naturally, would be that we would be overtaken in the knowledge economy. Just as we have been overtaken in the manufacturing arena on cost, we will be overtaken on knowledge because of the better opportunities that young people have in emerging nations. So, I agree that we have changed where we are getting our wealth from, but I am not persuaded that, because it is coming from non-traditional industries, it is not welcome and it is not performing well for the UK Plc.

  Q149  Lord Trefgarne: May I ask a quick supplementary? You referred to the modest improvement we have had in productivity in recent times, and that is fair enough. How far has that been the result of increased investment, rather than the sort of things we are talking about now, and maybe even more investment would improve the picture further?

  Jim Fitzpatrick: I think that that is a very fair comment, your Lordship. One of my areas that I mentioned at the start is being Minister for Postal Services, and in Royal Mail Group it is absolutely clear that Royal Mail is very vulnerable to the competition. We now have a liberalised market, because lots of the companies which are moving into mail delivery are very automated, very mechanised, which is why we are spending hundreds of millions of pounds to assist the company in its modernisation and transformation programme, because if they do not introduce new technology, if they do not introduce automation, they are not going to be able to compete against the other companies in the field; and that means investment- it means investment in technology, it means investment in equipment—and that costs jobs. There will be jobs lost, and there have been tens of thousands of jobs lost from Royal Mail already in this arena. So, investment is a big part of making sure that the UK remains competitive.

  Q150  Lord Wade of Chorlton: Minister, I would like to discuss a couple of issues with you in relation to the impact of labour law on UK business. As you will be aware, we have had evidence from the CBI and from the Federation of Small Businesses, and both are concerned about the impact of labour law upon businesses and on their wealth creation. I wonder to what extent you have any sympathy with the views of the CBI and the FSB argument that, regardless of the merits of individual pieces of legislation, the cumulative effect is becoming quite serious in some companies in some sectors?

  Jim Fitzpatrick: We always take very seriously any submission from the CBI, as we do from the TUC. However, I think that, notwithstanding that business will always complain about the burden of regulation, the evidence suggests that we are getting the balance about right, otherwise the UK economy would not be performing as it has been over the last decade. Surveys undertaken for small businesses right the way through say that regulation is a very tiny restriction on their ability to expand and to grow, and from our point of view the fact that we are introducing minimum standards across the UK labour market, such as four weeks paid holiday, the regulations that we are consulting on at the moment to give eight additional days for bank holidays to everyone in the UK, some people have criticised as being burdensome, just as some criticised the introduction of the national minimum wage. We do not think they are burdensome, and we do not think they are burdensome on the vast majority of companies, because the majority of companies in the UK observe far better than minimum standards. There will be always be concern about regulation, and we have got, as I am sure you know, the Government's simplification plans which were published only a few months ago. We are regarded as being one of the best places to do business by the World Bank. We took the Dutch lead in terms of trying to reduce the regulatory burden. The DTI, because of the fact that we are the business-facing government department, has more regulation to deal with than anybody else in terms of making life easier for business, and we have already identified £700 million worth of savings in regulation. We have introduced simple mechanisms. Regulations are now only introduced on 1 April and 1 October. So there are two implementation dates in the course of the calendar, which means business knows and can plan forward, but we have also got a number of other initiatives. We have a practitioner panel, which includes representatives from business, and from the TUC, which meets regularly to advise us; I myself Chair a Ministerial Challenge Panel on a bi-monthly basis—I think it is bi-monthly; it sometimes seems more frequent—but this is a clearing house for business representatives from small business, from the Chamber of Commerce through to the CBI to ask us to bring officials from any government department to actually explain regulation and to defend regulation, and we make recommendations as to where we can go, and we also have the Business Link website, which has an open invitation to small businesses in particular to demonstrate where they think there is a problem that we need to look at to try and make life easier for business. We have got on-line tools and guidance now to make life much easier for small businesses because they can download templates, to tick-box and fill in forms as opposed to having previously to deal with and list regulations themselves. So, we think we are working very hard to make the regulatory burden as light as possible, but we know that this is an ongoing and continuous task. We know that business will always complain that they are over-regulated, and sometimes they are right.

  Q151  Lord Wade of Chorlton: We had views from the FSB that small businesses might be in someway exempted from some aspects of employment regulations. In asking this question I must declare an interest because I am involved with a number of small businesses, particularly in venture capital activities where I have spent a lot of time starting businesses and I know the enormous pressure that, in fact, they are under in practice. I must make the point that running a small business is a very, very lonely business and you have got to concentrate all your efforts on what you can do to make the business survive, and you know better than I how many businesses do not survive. I think this is an issue and, although I am pleased to hear that you are looking at it very closely, I do hope you will continue to do so because I think it is a very important issue. Do you have a view on a possible de minimis system for small business?

  Jim Fitzpatrick: There are some regulations, for example the statutory trade union recognition procedure does not cover companies with less than 20 employees. We thought that was perhaps too burdensome when we introduced it, but when we introduced the national minimum wage and paid holidays, maternity leave extensions, et cetera, we felt that those were appropriate to be extended to the whole of the workforce. We do give assistance where we can to small businesses. I did mention a moment ago that surveys undertaken indicate that, although there are some businesses who do say that there are problems, a very small per centage actually identify that the regulatory burden is what is preventing them from expanding. Therefore, we think we have got the balance about right.

  Q152  Lord Trefgarne: May I ask another quick supplementary, with your permission? I think the Minister said he was consulting on allowing the eight bank holidays as further compulsory holiday, if you like. I have done a brief calculation, and I hope I have got it right. That is four per cent on the wages costs of every firm. Is that what you intend?

  Jim Fitzpatrick: The evidence that we have at the moment is that the vast majority of companies already give at least 28 days. In the European league table of public holidays, the UK sits either at, or very near, the bottom. The introduction of time off for the eight bank holidays will take us to just below mid table. So, in terms of European competitiveness, we do not think that this ought to create a major problem. When we introduced the four weeks paid holiday through the Working Time Regulations back in 1998, I have to say, as a backbench MP at the time, our expectation was that people would get the bank holidays on top of the 20 days. What has emerged since then is that the vast majority do, but there is a small minority who do not, and what we are saying is that everybody ought to be able to expect time off for eight bank holidays as well as four weeks paid holiday during the course of the year's working time for a company. We made this a manifesto commitment in 2005. We have been consulting almost since then with business and with the trade unions. We are closing in on our conclusions. We hope to introduce the first four days from October this year and the second four days from October 2008. We are just concluding our consideration of the submissions that we have had from businesses saying that they would like a transitional period, which we may be able to allow, but we are determined to introduce this and we do not think the cost is going to be unnecessarily high for business to match.

  Q153  Lord Trefgarne: There is talk of another bank holiday, I think, is there not?

  Jim Fitzpatrick: There is always talk of another bank holiday. I am the Minister for time. So, when we get the clock changing every spring and every autumn, there is a flurry of letters saying, "Why cannot we go to central European time", or double summer time, or whatever. There was a Private Members Bill from Mr Tim Yeo only recently. Again, looking back at all the evidence, we had the experiment from 1968 to 1971 (three years) when we had double summer time, and the Government changed it because the country said, "We have had enough of that. We want to go back to where we were before." The Portuguese had a four-year experiment. They abandoned it; they came back to GMT. There is almost a line you could draw in the country as to who would benefit and who would not benefit and even there it is not quite clear. There is a flurry of letters coming through because in Northern Ireland they are introducing an extra bank holiday. The Scottish Parliament has passed legislation to say that St Andrews Day should be more closely celebrated. Forgive me, this is classic cockney. I have been a Londoner for 35 years, so in case this is causing any confusion, as Baroness Uddin knows, my constituency is Poplar and Canning Town in Docklands in East London, and because the Scottish Parliament has passed legislation to say we should celebrate St Andrews Day more closely, people have been saying, "The Northern Irish have got an extra bank holiday, the Scots are having one, we want one and we want St George's Day."

  Q154  Lord Trefgarne: Trafalgar Day, please!

  Jim Fitzpatrick: We would, obviously, have some sympathy with that, but what the Scots have said is that they are not having an extra bank holiday, what they are saying is people can reserve the right to work on one of the traditional bank holidays and ask their employer if they can have St Andrew's Day off instead, and they are trying to get some flexibility in here. So, there is not an extra bank holiday in Scotland, and the Government has no plans to introduce one at this point in time. The eight days leave that we are introducing is to create a level playing field for the good businesses who have traditionally given people the leave that we all expected they were entitled to and to say to the businesses, some quite big businesses, who have not that they should play fair by their work force and give the minimum that is required, and these are minimums. Some companies, obviously, allow a lot more.

  Chairman: I think we had better get back to labour law and collective rights and Lord Moser's question.

  Q155  Lord Moser: I am rather sorry to leave that subject. Minister, you referred to the TUC just now. The TUC, when they gave evidence to us, stressed the importance of fundamental rights as part of labour law and, in particular, the coverage of collective bargaining, et cetera. It was an obvious topic. What do you feel about the TUC's view that the EU approach to all this should cover collective rights more than they do as well as individual rights? That is the issue.

  Jim Fitzpatrick: I do not see the Green Paper as an attack on collective bargaining or an attack on trade union organisation. I probably should declare an interest. The last ten of my 23 years as a member of the London Fire Brigade was as a seconded lay official of the Fire Brigade Union on full-time release doing trade union duties. So, I have a trade union background, albeit in lay terms. We think that the collective arrangements that we have in the UK are serving us well. Only six and a half million of our 27, 28 million people in work in this country are formally members of trade unions affiliated to the TUC, so it is a minority position, and the TUC obviously used to be a much bigger organisation and hopefully it will be able to take advantage of that which we have introduced by way of better rights and statutory recognition arrangements, which have been in position for some years now, but we do not see the Green Paper as being an attack on collective bargaining or on trade union rights and we would be firmly protective and defensive of those because we see that we have the balance right between the social partners in the UK.

  Q156  Lord Moser: Does the EU have the balance right? I suppose that was the implication of the TUC question.

  Jim Fitzpatrick: I think the difficulty in assessing that is that there are so many different models. Almost every country has a different model, and the Commission is trying to put in place some basic standards and some guidance, but they do not have competence to legislate in the area of industrial relations. Things like the Working Time Directive and Agency Workers Directive, et cetera, they can put down what ought to be applying in the workplace, but it is up to individual Member States look at that and apply it in the way that is appropriate for them and introduce it through the consultative mechanisms that are existing in those countries. I do have to say that sometimes it is a bit confusing to me how all the different Member States have their collective arrangement agreements when we are criticised sometimes by trade union colleagues in this country for not introducing different aspects of European law, but we can point to other European Member States who use collective agreements which give derogations to aspects of European labour law and we say ours are better, ours are stronger, and that is a no-win situation because it is a judgemental call as to whose provisions are superior.

  Q157  Baroness Neuberger: The Green Paper, as you know, has a kind of description of the changes in the labour market and has all the different flexible types of contract, short-term and whatever. Some people would say that it may make it much easier for employers because it is so flexible, but it makes job security much lower. In your evidence to us you argue that we have the second lowest job insecurity feeling, if you like, in Europe, and, of course, we have got very high employment and very low unemployment. To what extent do you think it is the framework for employment flexibility and security in the UK that actually offers an approach for the EU that they could adopt, or to what extent do you think that at the moment we are fortunate because employment is so high and unemployment so low? To what extent is it the way we do things, or to what extent is it just the chance of the way the statistics fall?

  Jim Fitzpatrick: I think it is probably a combination of both. Forgive me, I am not quite clear how wary I should be of making partisan political points, but the way the Government has handled the economy over the past ten years has created the economic framework within which business has been able to operate, which is given as the fortunate position whereby we have put on two and a half million extra jobs and, therefore, with the arrangements that we have in organisations like the employment service with Jobcentre Plus, the New Deal, which really attacked the long-term unemployed and youth unemployment, I think that people now know there is a framework of social protection and social assistance out there that if they do lose their job, for whatever reason, then there are provisions within society to be able to look after them and to assist them to get into another job; and because we have two and a half million new jobs, because unemployment is down and it is no longer the spectre that it was in recent decades, I think that gives people a greater sense of well being and a greater sense of security. How we have arrived at that, obviously the economists among you would be probably much better placed than me to make an analysis of whether it was Bank of England independence, whether it was a light touch labour market, whether it was reducing regulation or whatever, but I think generally circumstances have worked in our favour and obviously the Government will want to take some credit for that.

  Q158  Baroness Neuberger: Sure, but as far as you are concerned, you would not say that legislation was the key player in that?

  Jim Fitzpatrick: I think it has an influence. To say that it does not would be foolish. If we were to introduce regulation which would strangle companies in red tape then companies would leave. We can always read in the financial pages of different transnational corporations who are based in the UK who are saying, "We are going to move out"—the discussion we had earlier on about manufacturing—sadly that has been the picture for some decades. Companies will always have the opportunity to relocate. We are seeing Barclays at the moment in discussion with ADN and all of a sudden they might move, but they would maintain a huge UK presence. Companies can move wherever, and if we did get the regulatory burden or the tax burden wrong, then, clearly, that would act as an incentive for companies to move out. The fact that we are seeing location of companies to the UK and companies comfortable to operate within the UK tends to suggest to me that we have got the balance about right.

  Q159  Earl of Dundee: How do you think that the modernisation of labour law can best advance a flexicurity agenda?

  Jim Fitzpatrick: I have to say that the first time I heard the word "flexicurity" I was visiting the Greek Secretary of State for Employment in Athens—on a 22-hour visit, I have to say this was not an opportunity to enjoy the city—and he used flexicurity and that was new to me, as I was relatively new to the post. But, clearly, the concept has been created, as it were, because of the two imperatives on the one hand business wants to see flexibility in the workforce, the ability of workers to be upskilled and to be able to undertake tasks that are required, and the unions and workers themselves want security in employment so that they have got some comfort in the jobs that they have, in the wage levels that they enjoy and the conditions that would emerge; so to combine the two is very much the driver, I think, for European labour law. Every Member State, obviously, has different imperatives and different challenges and will adapt and adopt European regulation in different ways, although obviously the core essence is there. So, modernising law and modernising European labour law is very important, in my view, in terms of trying to make sure that, within the whole of Europe, we have a framework that allows individual Member States and the economies and businesses within those to be able to function competitively in the global market place.

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