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Worker Exploitation: Leicester Textile Industry

Volume 684: debated on Wednesday 18 November 2020

I beg to move,

That this House has considered the matter of tackling worker exploitation in the textile industry in Leicester.

It is a pleasure to serve under your chairmanship, Mr Hollobone. Leicester has a proud heritage of textile manufacturing. By the middle of the 20th century, the success of our hosiery and footwear industries, including companies such as Corah, Wolsey and Byford, led to Leicester being called the place that clothed the world and the second richest city in Europe. Although no longer on that scale, the textile sector still employs around 10,000 workers in 1,500 firms in Leicester and Leicestershire, the second largest concentration of textile firms in the country outside of Manchester. I want my constituents and people across Leicester to have the highest possible standards of employment. I want them to be paid well and trained well, and to work in a safe and welcoming environment. I want our local businesses to be the very best and to have the support that they need to expand and thrive, and I want a sustainable and productive economy for our city and country as a whole. That is why I am so concerned about poor and exploitative working practices in some parts of the textile industry in Leicester and why I believe more effective action must be taken.

I want to focus my comments today on the fashion retailer Boohoo, which is a major part of the problem experienced in the city. I want to talk about the company’s shareholders, who, with one notable exception, have failed to fulfil their responsibilities, and I want to talk about the Government, who have a crucial role to play in ensuring an effective system of regulation and enforcement, backed with sufficient resources.

I wish to put on record that, although I admire the fact that my hon. Friend has secured this debate, which is very pertinent to Leicester, the issue very much affects all of the consumers who purchase items from these retailers. The items are manufactured often in Leicester and procured in Leicester, and it is vital for everybody to know that these goods are being produced in the right way and that the workers are being treated properly when we make those purchases.

My hon. Friend makes an extremely good point. This issue does not just affect the workers in this industry. It does not just affect those of us who have pensions that are invested in these companies. It also affects us as consumers, which is why it is so important that we get this right.

There have been long-standing and serious problems with workers being exploited in some textile factories in Leicester. In the last five years alone, they have been highlighted by the University of Leicester, the BBC’s “Dispatches” programme, the Financial Times and the Environmental Audit Committee. Many, although not all, of these appalling cases had been in the supply chain of fashion retailer Boohoo. The latest issues were exposed by The Sunday Times in July. Following those revelations, Boohoo finally commissioned a review into the supply chain, carried out by Alison Levitt, QC. The findings of this review, published in September, were utterly damning.

Ms Levitt found that repeated allegations of unacceptable working conditions and illegal underpayment of workers were

“not only well-founded, but substantially true”—

something that Boohoo had denied or downplayed for many years, which I know personally from my meetings with the chief executive and director of sustainability. The review found that a significant number of Boohoo’s suppliers and subcontractors had been paying their employees less than the national minimum wage and had serious health and safety violations, including the risk of fire that could lead to loss of life, and that employees’ rights had been ignored and neglected on a wide scale. The review concludes that these problems are endemic and

“exist across the best part, if not the entirety, of Boohoo’s Leicester supply chain.”

Ms Levitt says that Boohoo’s monitoring of its supply chain has been “inadequate” for many years, and that is down to “weak corporate governance”. She says:

“Commercial concerns such as growth and profit were prioritised in a way which made substantial areas of risk all but invisible at the most senior level.”

From March 2019, Boohoo knew there were problems in their supply chain, and,

“By December 2019, at the latest, senior members of the Boohoo Board knew for a fact that there were some serious examples of unacceptable working conditions and poor treatment of workers (including illegally low pay).”

Despite all that, in late June 2020, astonishingly, Boohoo unveiled a plan to pay bonuses of up to £100 million to its two co-founders, Mahmud Kamani and Carol Kane, and £50 million to its other senior executives.

Ms Levitt says that when the covid-19 pandemic struck,

“Boohoo was quick to take advantage of the commercial opportunities afforded by the increase in demand during the pandemic”,

but that

“at no point was any assessment made as to how the Leicester workforce was to cope with the increased volume of orders.”

She rightly concludes that that was “inexcusable” and that,

“in truth Boohoo has not felt any real sense of responsibility for the factory workers in Leicester…because they are largely invisible to them.”

An under-reported part of the review relates to the behaviour of Boohoo’s chief executive, John Lyttle, and the executive chairman and co-founder Mahmud Kamani. Ms Levitt questions why John Lyttle failed on three occasions to tell her about an email that identified extremely serious health and safety concerns in the Leicester supply chain. She says:

“It was my view that, given that John Lyttle could not possibly have forgotten this, his failure to tell me about it was significant.”

Ms Levitt highlights Mr Kamani’s “lack of knowledge” or even “interest” in reports by Boohoo’s internal auditor about problems in the Leicester supply chain or the checks carried out by its independent auditor, Verisio. Significantly, she says that

“the Board has found it difficult to stand up to the current Chairman and to ensure that the best interests of all the shareholders are acted upon.”

She concludes that

“for too long, Mr Kamani’s priorities have been allowed to dictate company policy.”

Perhaps Ms Levitt’s most striking finding is that:

“No member of the Board I interviewed mentioned that the responsibility for what is happening in the supply chain derived from the duty of the company’s officers to act in the best interests of all the shareholders.”

She also highlights

“the failure of the company to grasp that their responsibility for the factory workers does not derive from a nebulous ‘moral’ duty but from their obligations as officers of the company.”

I am going through this in so much detail because it beggars belief that the very people who denied and brushed aside this appalling exploitation are still in place and, far from suffering any penalties as a result of their failures, have instead given themselves a huge pay cheque. Hiring independent directors, however good they may be, will not solve fundamental governance weaknesses where boards are still in the power of an all-powerful founder chairman, as others have rightly said today.

Boohoo is still failing to take sufficient action and fobbing people off with warm words. It promised to implement all the recommendations of the Levitt review, but to take just one example, I have repeatedly asked Boohoo to send me its emergency plan for a second national lockdown and to spell out exactly how many people are now physically inspecting the factories in its supply chain—a key recommendation of the Levitt review—but I cannot get any clear answers. This is a serious question for the chief executive, the executive chair and other members of the Boohoo board. It is a serious question for Boohoo shareholders, too, because shareholders have a responsibility for the companies that they own, and fund managers should be held to account for their promises to champion responsible investing and environmental, social and governance—so-called ESG—issues.

Following publication of the Levitt review, I wrote to all of Boohoo’s major shareholders to ask what action they were taking as a result of what I think is one of the worst ESG scandals in modern UK history. I said that I did not think that those who had turned a blind eye to these problems over many years were the right people to take the company forward. To be clear, the executive chairman and the chief executive officer should be removed.

The response has so far been extremely disappointing, to say the least, save for the notable exception of that from Standard Life Aberdeen. Of those shareholders that have replied, Jupiter Fund Management has told me that it is in “close dialogue” with Boohoo. Fidelity Investments claims that it has had “positive engagement”. Invesco also says that it is “engaging”. And BlackRock says that it is

“following the situation with the company closely”.

None, however, has changed any of its actual investment decisions. That makes a total mockery of their promises and claims to champion responsible investment. This matters, because these are the companies that manage the retirement savings of millions of ordinary Britons.

In contrast, Standard Life Aberdeen has sold all the shares that it owned in Boohoo, because of the company’s failure to take proper action. It told me that it had over time made specific demands of the company to improve its supply chain practices and management. It met regularly with the company to monitor progress. It demanded an extension of the audits carried out on the company’s UK supply base and said that Boohoo should engage with industry-led supply chain initiatives. It said that its patience with the company’s response on these issues had been diminishing during all of last year, that that patience finally evaporated in the summer, when the allegations by The Sunday Times were published, and that that was why it took the decision to sell its remaining shares. Standard Life Aberdeen also told me that it voted against the appallingly hubristic pay package for the co-founders and senior executives when it was introduced at Boohoo’s 2019 annual general meeting.

Standard Life Aberdeen is to be applauded for its decisions, because fund managers need to champion responsible investing—not as the latest marketing gimmick, but because they intend to drive real change. Otherwise it is all just warm words and not worth the paper, or website, it is written on.

Let me turn finally to the role of Government. Although most of Ms Levitt’s review focuses on Boohoo, she makes it clear that inaction by Government has also contributed significantly to the problems of worker exploitation in the textile industry in Leicester. She concludes:

“Legislation is not merely a system for regulating society but also the mechanism by which society’s values and priorities are communicated. If the law is not enforced, this sends a clear message that the violations are not important and the people affected do not matter.”

I think Ms Levitt is right, yet over the last decade the very bodies responsible for tackling worker exploitation and enforcing workers’ rights have faced considerable budget cuts from this Government, which has significantly reduced their capacity for inspection and enforcement. For example, Her Majesty’s Revenue and Customs, responsible for enforcing the national minimum wage, has seen its budget cut by 17%, and the Health and Safety Executive has seen its budget cut by a staggering 46%. The HSE was also explicitly told by the Government to reduce its proactive inspections in the textile industry by a third, because Ministers wrongly considered this sector low risk. On top of this, Ministers have refused to implement recommendations from key reports such as the Environmental Audit Committee’s “Fixing fashion” report, which made some really important proposals, especially about improving supply chain transparency. The Government have also been far too slow in sorting out the mess of different regulatory bodies involved in this area.

Ministers proposed a new single enforcement body almost two years ago, but we have yet to see a response to the consultation on that important change, let alone the Government’s actual proposals. There are lots of important questions about this body that need to be answered: how much of a local presence it will have, how much it will engage with the local community and trade unions, what kind of sectoral expertise it will have, and what its enforcement powers will be. The Minister will know, as I met him to discuss this yesterday, that I think there is much that could be learned from the work being done by Leicester City Council as the Government develop their proposals for the single enforcement body.

Although local authorities have no powers to check on working conditions inside a building, enforce the minimum wage, or monitor the legality of the workforce, Leicester City Council has nevertheless been working hard to do what it can within the current framework and legislation. It has appointed a co-ordinator to bring the various national enforcement agencies together to improve intelligence sharing and enforcement—the very first post of its kind in the country. The city council is working closely with trade unions, local community and voluntary groups, the citizens advice bureau and Crimestoppers to raise awareness about the problems, better engage with employees, and give exploited workers the courage to speak out, because we know the fundamental problem is that many people are too scared to say what is really happening.

The council is also proactively helping the textile industry modernise by providing bespoke business advice, holding training sessions with factories and supporting businesses with nearly £600,000 of grant financing, for new equipment in particular. It is also investing £200,000 into setting up a new skills and training centre for the textile sector, and seeking investment and support from the industry and others.

Before I finish, I particularly want to emphasise to the Minister the importance of working with trade unions to support the positive changes we need. If we want greater openness and transparency, if we want a partnership between employers and employees to improve workplace safety and standards, and if we want all workers to have the courage and confidence to speak out, we must increase union representation in the textile industry. I hope that when the Minister speaks he will commit to working on these issues with trade unions such as Community and the GMB, because this is a critical issue for the future.

In conclusion, the responsibility for tackling worker exploitation in the textile industry—not just in Leicester but across the country—lies with the boards of textile companies and fashion retailers, with the shareholders of those companies and with the Government. Action is required by all three to end exploitation and ensure that not only Leicester’s but the entire country’s textile industry improves its standards and has an ethical, productive and sustainable future. I hope the Minister agrees, and look forward to hearing his response.

I am afraid the hon. Lady does not have permission to speak from the Member in charge or the Minister, but she is welcome to intervene on the Minister.

It is a pleasure to serve under your chairmanship, Mr Hollobone. I would like to thank the hon. Member for Leicester West (Liz Kendall) for securing today’s important debate. I was pleased to have the opportunity to meet with her and Councillor Clarke from Leicester City Council to discuss the issue, share our thoughts and plan together. I know it is not going to be the first or last time that we meet to do so. I welcome the opportunity to hear about the work on the ground in Leicester, and their insights as well—it is so important that we learn from the experiences there.

I did have permission, Mr Hollobone. I congratulate the hon. Member for Leicester West (Liz Kendall) on securing this important debate. The Minister says that we need to learn, but while the pandemic has thrown the crisis into sharper light, exploitation in Leicester’s textile industry is not a new phenomenon. The reality is that it has been widely reported and studied for at least a decade and there has been a shameful failure to act, despite widespread, long-standing evidence of employer misconduct. There has been a failure to address institutional exploitation in Leicester’s garment industry, which has been brought to official attention over many years and has posed an obvious injustice and health risk to workers.

I thank the hon. Lady. We did have an exchange yesterday in a wider debate about workers’ rights and I was pleased that she was able to raise the important ongoing issues in Leicester. I shall cover some of the historic enforcement issues and what we have done, involving a variety of bodies, as well as some of the problems with getting the evidence to a point sufficient to get people to speak out and make it possible to mount prosecutions.

We are committed to ensuring that workers receive their employment rights, and that employers act responsibly. It is important to realise that some workers are particularly vulnerable. That is where our enforcement bodies have a role. The Government already spend more than £35 million a year enforcing the national minimum and living wages, protecting agency workers, administering a licensing scheme for labour suppliers in the fresh food supply chain, and protecting workers from the worst cases of labour exploitation. In 2017 the Government created the office of director of labour market enforcement, to ensure greater joint working and set the strategic direction across the three labour market enforcement bodies—HMRC national minimum wage enforcement, the Employment Agency Standards Inspectorate and the Gangmasters and Labour Abuse Authority.

The labour market enforcement bodies play a crucial role in protecting vulnerable workers. In 2019-20 alone, HMRC recovered more than £20.8 million for more than 260,000 workers and issued 1,000 penalties to non-compliant businesses with respect to national minimum wage. The Employment Agency Standards Inspectorate recovered more than £61,000 for agency workers, dealing with almost 1,700 complaints, and led more than 300 inspections. The Gangmasters and Labour Abuse Authority recovered more than £166,000 for workers and was involved in more than 260 criminal investigations, which resulted in 29 arrests for suspected labour market offences.

Those figures show only a fraction of what state enforcement bodies achieve on a daily basis to protect vulnerable workers, but there are challenges with so many different bodies playing a role in this space. That is why we have committed to the creation of a new single labour market enforcement body that will bring together what is currently a fragmented landscape, as we have heard, making it easier for workers and employers to know where to get help. It will do even more, enforcing holiday pay for vulnerable workers and also with respect to umbrella companies. By bringing together the existing bodies we can also develop a more comprehensive picture of non-compliance, making better-targeted, proactive activity possible.

We consulted on proposals for the new body last year, as the hon. Member for Leicester West said. We planned to take them forward in the forthcoming employment Bill. Progress on that has been slower than I would have liked, because of covid-19, but the delay gives us the opportunity to learn a huge amount from the situation in Leicester, as well as from the covid-19 pandemic situation. That will strengthen the plans for the new body.

I have only a little time to cover the points raised, I am afraid.

The allegations of abuse in textiles manufacturing in Leicester that are the subject of today’s debate are not new, as the hon. Member for Leicester East (Claudia Webbe) said. On the recommendation of the previous director of labour market enforcement, Sir David Metcalf, the main enforcement bodies undertook a pilot project with Leicester City Council in 2018 to address the issues. In response to the most recent allegations, as we have heard, a multi-agency taskforce led by the Gangmasters and Labour Abuse Authority has been set up in Leicester. It works closely with Leicester City Council. Partners include HMRC, the Employment Agency Standards Inspectorate, Leicestershire police, the National Crime Agency, Leicestershire City Council and the Department for Work and Pensions.

The work plan includes targeting enforcement activity, strengthening intelligence gathering and improving community engagement. The taskforce has identified more than 200 premises of interest for investigation and has so far conducted more than 140 visits. In those visits, it has identified issues with non-payment of national minimum wage, unsafe working conditions and small amounts of potential illegal working, but so far it has seen no indication of modern slavery offences. The enforcement bodies will fully investigate all concerns and bring appropriate enforcement action against non-compliant employers.

Historically, HMRC has recovered more than £215,000 in wage arrears for 411 textile workers and issued more than £325,000 in corresponding penalties to employers, including in Leicester. Since 2015, HMRC has facilitated 19 director disqualifications relating to the textile sector. Early evidence suggests that the visibility of enforcement activity is having a positive effect on employer behaviour, with some factories making changes to become more compliant. That is an encouraging development, but the enforcement bodies clearly are not complacent.

One of the major challenges is a lack of reporting from workers, many of whom may be worried about speaking to law enforcement because of a perceived fear of reprisals. Leicester City Council has been leading work to improve community engagement and encourage people to come forward, and has launched a campaign with Crimestoppers to raise awareness and promote workers’ rights. In recent weeks, the taskforce has seen a small increase in reporting from workers, although we remain conscious that there is still work to be done.

This is a key issue that we need to look at as we develop plans for a single enforcement body; it must be seen as being approachable to workers and employers. We need to build stronger links—as we have seen in Leicester—with local authorities, workers and community groups, who can share valuable insights and information. There is much that we can learn from Leicester City Council here. I am also grateful to the director of labour market enforcement, Matthew Taylor, who is chairing a series of workshops to gather views on how we can make the body approachable to different groups and build links for effective ongoing engagement. Getting that right will be key to the body’s success. Through those workshops, Mr Taylor will also consider what sort of sectoral engagement and approach might be needed.

Alongside enforcement action, however, retailers of course have an important responsibility to promote compliance in their supply chains. The findings, as we have heard, of the review by Alison Levitt, QC into Boohoo’s Leicester supply chain are very concerning. I welcome Boohoo’s commitment to implementing the recommendations in that report, but, as the hon. Member for Newcastle upon Tyne North (Catherine McKinnell) said, there is much more that we need to do. We must not be complacent, but work to see that that is carried through.

Since the publication of the report, the engagement with Boohoo has been encouraging, but there is more to do. Boohoo and other retailers, including Missguided and New Look, have raised issues with the taskforce as they have become aware of them, which has been instrumental in building the intelligence picture. The apparel and general merchandise public and private protocol is the main form of engagement between the taskforce and the sector, and is aimed at tackling all forms of labour exploitation in the garment trade. That group is undertaking a programme of work looking at improving worker engagement, business accountability, intervention mechanisms and the regulatory framework; I very much support its work and look forward to seeing the results.

The Leicester and Leicestershire Enterprise Partnership is also playing an important role, working with the city council to support businesses and improve working practices. It is keen to set up a textiles hub in the city, supporting local businesses and employees through the sharing of best practice, skills provision and business training. The Government have provided £1.4 million to the enterprise partnership since 2015; I welcome these initiatives and I encourage local partners to join in and deliver those plans.

It is in shareholders’ long-term interests to promote responsible behaviour from the companies they own. The share price often suffers if companies are found wanting. As reflected in the revised stewardship code, which took effect from the start of the year, I expect asset managers to take more account of environmental, social and governance factors in their investment activities.

The Government have acted to drive stronger business transparency so that companies are more accountable to shareholders on corporate responsibility. For example, in 2018, our corporate governance reforms introduced new company reporting requirements on executive pay, including pay ratio reporting and new reporting on how directors are having regard to employee, environmental and other interests in pursuing the success of their company within the meaning of section 172 of the Companies Act 2006. The hon. Lady talked about consumers, as well as shareholders, having a responsibility beyond the value of the company. It is important that consumers get that right and are very aware about supply chains, albeit that some supply chains are incredibly complicated.

The behaviour of brand names is not only affecting Leicester. I engage regularly with retailers and manufacturers from across the country on the issue and I stress the importance of preventing abuse in supply chains. I know the Business, Energy and Industrial Strategy Committee is doing some important work on that as well. My officials are engaging with the British Retail Consortium on options to improve compliance in UK textile manufacturing, including proposals for a licensing scheme.

We are also committed to strengthening our approach to transparency in supply chains overall, under section 54—

Motion lapsed (Standing Order No. (10(6)).

Sitting suspended.