Monday, 6 July 2009.
Arrangement of Business
Before the Minister moves that the first statutory instrument be considered, I remind noble Lords that in the case of each statutory instrument the Motion before the Committee will be that the Committee do consider the statutory instrument in question. I should perhaps make it clear that the Motion to approve the statutory instrument will be moved in the Chamber in the usual way. If there is a Division in the House, the Committee will adjourn for 10 minutes.
Work and Families (Increase of the Maximum Amount) Order 2009
Considered in Grand Committee
This Government want to do all they can to help hard-working people who have been affected by the current recession. Although levels of redundancies have not reached those seen in the recession of the early 1980s and 1990s, the devastation caused to communities by that experience, when whole industries were wiped out, are still fresh in the nation’s memory.
Recently, we have had the sad news that 2,000 people in the steel industry in the UK are going to lose their jobs. Each redundancy is the story of a career cut short, not out of choice but because of economic circumstances. For those individuals and their families, redundancy comes as a massive shock. When it happens, the Government have to be there for people. They have to help them through that situation and into another job. So it is right that, at this time, we do all we can to improve the situation for hard-working men and women.
We have made considerable progress in this area during the past 10 years. When we first came into office, the weekly limit had increased by only £5 a week over the previous six years, yet the annual uprating formula that we introduced back in 1999 has meant that the weekly limit has almost tracked average earnings for the past 10 years and increased by 6 to 7 per cent for the past three years—well above average earnings in that period. That is a far better record than any Government have had from the inception of the redundancy scheme back in 1965.
In addition to this financial support, we have introduced measures to help business and avoid the need for redundancies, but that is not all. We believe that you cannot simply stand aside and watch from the sidelines when people are losing their jobs. You have to step in and say, “We can help you to get a second chance”. That is why we have made it easier for people to get access to training to help them get back into work as quickly as possible. That is what we will be doing in the case of those steel workers. Those are just some of the things that we have already done to make a difference but we know that we have to do more.
The evidence might show that many people find work quickly after being made redundant, but that period between jobs can be tough—especially for those with families or loved ones to support. So, in the April Budget, we committed ourselves to raising the limit for statutory redundancy pay by £30. This order implements that commitment by providing for a one-off uprating to the statutory redundancy limit using a power contained in the Work and Families Act 2006. It increases the limit from £350 to £380 on 1 October 2009 instead of waiting until the next annual uprating round in February 2010, thereby giving immediate help to employees.
For the benefit of those noble Lords not fully acquainted with the intricacies of redundancy pay, I shall give a brief explanation of how this benefit is calculated. There are two elements to the calculation. First, you work out the number of weeks’ service that are payable to the person made redundant. That figure depends on their age and length of service. Up to the last 20 years’ service can be counted. Once you have worked out the number of weeks’ service that are payable, you multiply that figure by the weekly limit or actual pay, whichever is the lesser. Secondly, the capping mechanism is introduced. The limit is currently capped at £350. In other words, anyone earning that amount or more will have their number of weeks’ service multiplied by £350. So today’s proposals put an extra £30 a week into the redundancy calculation and, therefore, directly into the pocket of those most in need during this time of economic woe.
Besides the immediate help that an increase in redundancy pay will provide, the order has a number of associated benefits. First, it does not simply apply to the redundancy calculation alone, because other payments are linked to the weekly redundancy limit, including unfair dismissal awards and payments made to employees where their employer has become insolvent. Our order retains the link with these payments, effectively increasing their limit, too. This assistance is worth around an additional £15 million of support per year, provided directly from the Exchequer to redundant employees.
Secondly, our order addresses the problem of deflation. As things stand under the annual uprating formula, if deflation continues until the autumn, the limit could fall by £10 per week in February 2010 due to it being linked to the retail prices index. I am sure that noble Lords appreciate that in the current economic climate a fall would hit those already suffering the most. Our order rectifies this problem by suspending the annual uprating round for the redundancy limit in spring 2010, ensuring the limit will not fall.
So there are a number of clear benefits to the order. However, I am sure that noble Lords will also want to know the costs associated with this measure. We have calculated that the Exchequer would have to pay out from £15 million to £29 million per year, while the cost to business is estimated at between £51 million to £77 million per year. We accept that these are significant costs, but it is absolutely right to provide additional help to employees who are made redundant while keeping the additional costs on employers and the Exchequer to an acceptable level.
Of course, the order is not a panacea. No Government can ever say that they can stop a recession having an impact in terms of people losing their jobs or companies experiencing its effects. In the long term, the best way of avoiding redundancies in the future is to ensure that businesses are strong and able to take advantage of the opportunities offered by new technology and from increasing competition abroad. But future plans do not influence what happens today. Today, we must ensure that adequate provisions are in place during this time of unprecedented economic turmoil and that those made redundant are properly and fairly compensated for their service. For those reasons, I commend the order to the House.
I thank the Minister for introducing the order. We on these Benches are acutely aware of the effect that redundancy can have on people, and we have great sympathy with anyone made redundant. This order increases the weekly limit for a second time in six months; it has gone up since 1 January this year by over 15 per cent. It also removes the annual reassessment of the weekly cap, due in 2010, as the Minister said, when a fall is forecast in the RPI. So we think that there is a real risk that employers will in future have to make more redundancies than they would otherwise have had to in order to make the savings that they need to avoid being pushed into insolvency. That seems to us to be of questionable wisdom on the part of the Government. Furthermore, the Government have created an additional real and unnecessary problem for the many employers who offer enhanced redundancy schemes, which are based on a multiple of statutory redundancy pay. So what are the Government, who have created the problem for them, planning to do to assist them? With this order, the Government, in their anxiety to please their paymasters, are doing something that they may later regret.
From these Benches, I welcome this order. The two fundamental points that the Minister made are absolutely germane in the current situation. First, it is extremely important that with the uprating there should be an acceleration of the payments being made to those worst hit by what is happening in the economy. That acceleration is welcome. Secondly, the statement being made that the Government will ensure that an uprating, which might, in a deflationary world, result in people getting less from next spring, should not take place. For those two reasons, we welcome the order.
We believe that we have a good case for increasing the limit to help employees made redundant, particularly during the current recession. It is absolutely right for the Government to take action to prevent the collapse of the banks and to support business through the recession. It is right for us to help ordinary people as well as those people in difficult times. We have carefully considered the impact on employers, and the estimate is that the £30 increase would cost them an additional £51 million to £77 million per year. We accept that those are substantial additional costs, but stand by our view that we have struck the balance about right. There were calls to increase by an even larger amount, but we believe that we have got the balance right. We feel that we have had an excellent record over the past decade and that we now stand in the middle ground between those calling for no increase at all and those calling for a very substantial increase. We do not believe that the £30 increase is too onerous a burden for business. It is right to point out that businesses are vulnerable in what is a difficult economic climate. However, we weighed up the small increase against the needs of employees, who have shown loyalty to a company and deserve to have that loyalty recognised. We believe that the order strikes the right balance for both employer and employee.
It is unfortunate that the noble Lord, Lord De Mauley, used the derogatory phrase paymasters, as we are acting in the interests of fairness, not meeting any vested interests. We have also ensured that we are doing our best to help businesses in a number of different ways, whether it is the £270 million of guaranteed loans that have been offered to 2,855 businesses under the enterprise guarantee scheme, or the 135,000 businesses that we have helped to retain more than £2.4 billion of working capital by deferring tax payments. We have done our best to stimulate the automotive sector via the vehicle scrappage scheme, which has resulted in 50,000 orders since going live on 18 May.
I think that I have covered all the comments made. I welcome the comments made by the noble Lord, Lord Razzall, which are absolutely germane to the current situation.
European Communities (Definition of Treaties) (Cariforum Economic Partnership Agreement) Order 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the European Communities (Definition of Treaties) (Cariforum Economic Partnership Agreement) Order 2009.
Relevant document: 16th Report from the Joint Committee on Statutory Instruments.
The Cariforum EPA will bring together 14—soon, we hope, 15—Caribbean nations with the European Union to promote development-friendly trade. It means that the Caribbean countries will receive duty-free, quota-free access to EU markets. Without it, some countries have faced tariffs on up to 25 per cent of their exports, including on critical industries such as bananas.
The EPA allows the Caribbean countries to remove their own tariffs gradually, over 25 years, and contains safeguards so that they can protect infant industries and prevent import surges. It also—at the Caribbean’s request—includes provisions on services. Services are a key opportunity for growth in the Caribbean, particularly in tourism, leisure and the creative industries. No nation can achieve prosperity by closing its borders to trade. In the World Bank’s Global Monitoring Report 2008, it was calculated that removing all trade tariffs can reduce the headcount poverty index by 5 to 6.5 percentage points over a 10-year period.
I would like to quote the honourable Bruce Golding, the Prime Minister of Jamaica, who a month ago spoke publicly in support of the EPA. He said that the Caribbean’s hopes for growth are inextricably tied to trade and to its ability to penetrate and maintain markets where the demand is exponentially greater than Caribbean countries will ever be able to create themselves. What he said is equally true of the UK. The benefits from duty-free, quota-free access and from improved rules of origin are where the EPA will most quickly bring benefits.
The Dominican Republic is already moving to exploit previously enhanced market access for cocoa, bananas and textiles. However, in the longer term, the biggest benefits will come from the regional integration that will flow from all countries in a region signing.
This financial year, the Department for International Development has invested £5 million into a new trust fund known as CARTFUND to increase growth and deepen economic integration. To secure these benefits for the Caribbean we need to ratify the EPA. By agreeing to the order today, the Committee will be allowing us to proceed.
I thank the Minister for introducing the order. It is welcome news that 14 Caribbean nations and, we hope in due course, a 15th, will have duty-free access to EU markets. I have a few comments and questions for the Minister. First, does he have an anticipated date on which he expects Haiti to sign to make it a total of 15 countries? Perhaps he can expand on why he is confident that Haiti will indeed sign. Does the treaty come into effect whether or not Haiti signs?
Secondly, there was a debate in the other place on Monday about why no impact assessment had been produced. The Minister there admitted that none had been produced, but said that the Government have worked with Caribbean countries and with their partners in the Commission to ensure that they assess the impact of provisions concerning the organisation of EPAs. I shall not ask the Minister to set out the results of that now, but it would be helpful to noble Lords if he were to write to those taking part in this debate explaining in detail that assessment of the impact of the order.
Thirdly, Christian Aid has written to the Merits Committee, as the Minister will well know, saying that it believes that the likely results of the EPAs will be negative for the developing countries involved. Although the Caribbean nations have signed the EPA, it believes it should be renegotiated to reflect the development needs of the Caribbean. Could the Minister address the issues raised in its letter?
Lastly, there are a number of questions about the EPA and the WTO. While the Cotonou agreement, which preceded this agreement, was deemed non-WTO compatible, this agreement is said to be compatible. Can the Minister say what brought about the reconciliation? The need for small, under-resourced Caribbean nations to engage in the time-consuming negotiation process while dealing with the WTO process has made life extremely difficult for some of them, especially in terms of physical negotiating capacity. Does he have a response to the suggestion that bilateral agreements of this kind are an unwelcome distraction from a further Doha round?
I thank the Minister for proposing this order and welcome it from these Benches. I join in the questions asked by the noble Lord, Lord De Mauley, and hope for answers on the three points that he made. This is the end of a lengthy and somewhat painful process of negotiation, for the reality is always that moving from high protectionism to free trade is normally much easier for advanced countries than for less developed countries, particularly countries with very small Administrations, as has already been mentioned. It has taken quite a long time. We remember the very bitter criticisms of the President of Guyana last year, and there were objections from other countries as well. There were considerable discussions about the speed of opening of the Caribbean markets and other matters. None the less, these Benches welcome the agreement.
The EU Commission was very upbeat when the agreement was concluded, emphasising that the order was opening up complete front access to EU markets for Caribbean exports. In return, penetration into those Caribbean countries by exports from the EU would be over a long period to allow them time to adjust. The EPA allows Caribbean markets to protect sensitive sectors and local jobs where necessary. The service sector is also included, and the Minister might like to say something briefly about that because the EPA does not relate just to physical trade. The co-operation and innovation programmes are bound to be important for developing countries. Helping Caribbean countries meet exacting EU and international standards for foreign trade merchandise is a key part of this agreement, and perhaps the Minister will refer to that. Can he let us know the latest position on these matters with Cuba? I repeat the welcome of these Benches for this order.
We are fairly confident that Haiti will sign, because we believe that it has a vested interest in doing so. The order will come into effect if Haiti does not sign; but if it does not, we would need to amend the order as a result.
In relation to an impact assessment, a Caribbean study published this year found that the EPA would boost productivity and cause the economy and standard of living to rise by a few percentage points. It concluded that the ultimate effect on the domestic economy would be tiny and that the loss of tariff revenue would be compensated for by a small increase in indirect taxes.
On Christian Aid’s view that there would be negative impact, and with regard to the WTO, we cannot go back to that. The existing agreement was not compatible, whereas this agreement is, and we believe that it is a fair deal. As I said in my opening contribution, it allows the Caribbean countries to remove their own tariffs gradually over 25 years and contains safeguards so that they can protect infant industries, as mentioned by the noble Lord, Lord Dykes, and prevent import surges. Also, at the Caribbean's request, it includes provisions on services. Services are seen as a key opportunity for growth in the Caribbean, particularly in tourism, leisure and the creative industries. The agreement establishes a free-trade area by substantially liberalising all trade. We liberalise 100 per cent and the Caribbean liberalises 80 per cent, so we think that that is a reasonable balance.
We funded the Caribbean regional negotiating machinery to help negotiations—the noble Lord, Lord Dykes, or the noble Lord, Lord De Mauley, raised that point. However, we definitely gave assistance to help negotiations. The fact that 14 Caribbean countries signed is an indication of their support for the agreement. Cuba is not involved at all. The EU is also giving more than €150 million in aid to the Caribbean and we will provide something like 15 per cent of that.
I do not think that I have covered bilateral agreements and distraction from Doha. The instantaneous answer provided by my team is that we are still committed to Doha. That is just for the interim, so to speak.
National Minimum Wage Regulations 1999 (Amendment) Regulations 2009
Considered in Grand Committee
The 2009 national minimum wage regulations make three changes. First, they increase the hourly rates of the national minimum wage and the maximum amount for accommodation that is allowed to count towards pay for national minimum wage purposes. Secondly, they stop tips, service charges, gratuities and cover services paid to a worker through the employer’s payroll from being used to make up pay for national minimum wage purposes. Thirdly, they rectify an anomaly by ensuring that the Erasmus and Comenius programmes under the European Union’s lifelong learning umbrella are exempted from the national minimum wage.
First, I shall deal with the increases in the national minimum wage rates and the accommodation offset that are contained in Regulations 2, 4 and 6. As noble Lords will be aware, we are currently celebrating the 10-year anniversary of the national minimum wage. Despite the controversy when it was introduced, and a few dire predictions, it has become an accepted and vital feature of the British employment landscape. It continues to provide a floor below which wages cannot fall and therefore gives a certain level of protection for all vulnerable individuals.
To ensure that national minimum wage rates properly take account of economic circumstances, they are reviewed annually by the Low Pay Commission, an independent body made up of employers, trade unions and academics. The aim of the commission is to have a minimum wage that helps as many low-paid workers as possible without any significant adverse impact on inflation or employment.
This year, in the wake of the worst financial crisis since the 1930s, the commission has been doubly concerned to make sure that it gets its recommendations right. The Government therefore considered it right that the commission should be allowed to delay its report for several months. The delay gave the commission time to access additional data, including a further inflation report from the Bank of England, jobs figures for December 2008, gross domestic product data for the fourth quarter of 2008 and average earnings information up to January 2009. In addition, the commission was able to conduct further analysis of the current recession and seek more views from stakeholders.
The commission’s recommendations were published in May. It suggested that the adult rate, for workers aged 22 years and over, should increase by a modest 1.2 per cent. It also recommended that the other rates—that is, the rates for 18 to 21 year-olds, for 16 to 17 year-olds and the maximum amount for accommodation that is allowed to count towards pay for national minimum wage purposes—should also increase between 1.1 per cent and 1.3 per cent. We agree with the commission’s recommendations. They strike the right balance and ensure that low-paid workers are treated fairly. We estimate that nearly 1 million people stand to benefit from these increases.
The second change that the regulations will make, on the treatment of tips, also has at its heart issues of fairness. Since the national minimum wage came into being in 1999, it has been legal for an employer to use tips, service charges, gratuities and cover charges to count towards payment of the minimum wage where they are paid to a worker through the employer’s payroll. We have reviewed this position and have come to the conclusion that it is not right. The time is now right to ensure equity for all workers and create a level playing field in wages among employers, so that tips can no longer be used towards payment of the national minimum wage. This change will also benefit consumers, because when people leave a tip, in a restaurant or elsewhere, they expect it to go to the staff. Consumers have a right to know what actually happens to the tips that they leave in good faith. Regulation 5 therefore makes it clear that service charges, tips, gratuities or cover charges paid through the employer’s payroll will not count towards payment of the national minimum wage.
The third change that the regulations make is about ensuring consistent application of national minimum wage rules. It concerns the European Union’s lifelong learning initiative, which supports member states’ policies on employability, lifelong learning and social exclusion, and gives students the chance to gain work experience in other countries.
Work placements under one of the programmes under the lifelong learning umbrella, a scheme called Leonardo da Vinci, were specifically exempted from the national minimum wage in 2007. However, work placements carried out in the same way under two other programmes, Comenius and Erasmus, are not subject to the same exemption. Regulation 3 will ensure that work placements under both the Comenius and Erasmus programmes are exempt from the national minimum wage. We estimate that around 1,700 students a year are undertaking work placements under those programmes.
We should not stand by and let vulnerable or low-paid workers suffer particularly during this recession. At the same time, we have a duty to make sure that our regulations do not push struggling businesses over the edge. The measures contained in these regulations strike the right balance. For these reasons, I commend this instrument to the Committee. I beg to move.
I thank the Minister for introducing the regulations, which, at least in respect of the annual uprating, we debate each year. Before dealing with the annual uprating, I should say that we on these Benches welcome the fact that, in the hospitality industry, no deduction for tips will be made for purposes of assessing whether the minimum wage has been met. The old practice seemed to us to be unfair.
On the annual uprating, is the Minister aware of reports that people are being asked in the Government’s own jobcentres if they will accept wages below the national minimum wage? If such reports are true, do they not make a bit of a nonsense of the process, and are the Government taking any action on this?
Lastly, I would be interested to know what the Government would do if the Low Pay Commission—which has, after all, said that pressures on average earnings are on the downside and that forecast earnings in the fourth quarters of both 2009 and 2010 could prove optimistic—was in future to recommend a reduction in the minimum wage?
As the Minister will be aware, we on these Benches supported the introduction of the minimum wage and have been consistently supportive of the Government’s decisions in the 10 years since the minimum wage was introduced.
Two issues were discussed at length when these regulations were considered in another place. The first, obviously, is tipping. We certainly support both what the Government have done and what the noble Lord, Lord De Mauley, has indicated. Tipping vis-à-vis the minimum wage is not quite as straightforward an issue as it might seem on the surface because it has long been the practice in restaurants either to pool tips or to ensure that people who are not actually serving the meal receive a share of tips. People often say, “When we gave a tip in the restaurant we assumed that it would go to the waiter”, and they sometimes ask the waiter whether he will receive the tip for the service. However, there are often perfectly legitimate reasons why the individual waiter or waitress has not received 100 per cent of the tip, because the chef and the maitre d’ will receive a share, as will those who do the washing up. That is a perfectly legitimate practice. The regulations need to ensure that that practice is not discontinued as a result of the minimum wage deduction. But I am sure that it will not be, because properly run restaurants have been doing it for years while paying their staff properly.
The second issue which caused some debate in another place is the position that the Tory Party will take on the minimum wage should it get into government. The noble Lord, Lord De Mauley, may well indicate that that decision is slightly above his pay grade, or indeed his minimum wage grade; however, we on these Benches have watched with interest the change in the position that the Tory party has taken on this. It opposed the original Bill then, some years later, shifted its position when it was apparent that the minimum wage did not have the devastating effect on employers that the Tory Party had feared it might.
We on these Benches have always indicated that we support the minimum wage. That is particularly so when the Government have been taking into account the recommendations of the Low Pay Commission. It should not simply be a matter of a Minister saying, “We’ll put it up by x”. Were that to be the case, particularly bearing in mind the relationship between this Government and the trade union movement, there would always be a suspicion that objectivity was being lost. I know that the Minister himself cannot answer that, and the noble Lord, Lord De Mauley, has finished speaking in any event, but it would be interesting to know whether, were they to get into government, the Tories would support the continuation of the minimum wage, and whether they support the continuation of the Low Pay Commission.
I am pleased to see that the noble Lord, Lord De Mauley, welcomes the introduction of the amendment on tips, gratuities and so on. As I said earlier, the Low Pay Commission has the balance right on annual uprating. On people being asked in jobcentres whether they will accept less than the minimum wage, we would be appalled if that were the case. We are not aware of it. If the noble Lord has details, we will certainly check the situation and write to him to clear that up, so that there is no dubiety.
It would certainly not be appropriate to speculate about what might be the reaction to the Low Pay Commission’s recommendations in a hypothetical circumstance that may or may not happen. I welcome the comments of the noble Lord, Lord Razzall, and his point that the Liberal Democrats have always supported the introduction of the minimum wage; history has shown that.
On pooling, we are taking forward proposals on transparency and providing clear information for consumers about tips. We are working with businesses in the tipping sector, as well as consumer and worker groups, to develop best-practice guidance for business and clearer information for consumers. We have no intention of getting involved in the process of the tipping business. As the noble Lord, Lord Razzall, reminded us, pooling has been going for a long time. As long as it is not included in any calculations for minimum wage, determining the way forward is best left to individual businesses. However, clarifying the situation is certainly a good idea—such as for tipping by credit card, which is not always the best way to do so.
On the Opposition’s view of the minimum wage, I can only say that the dire predictions did not come about. They did not come about because we had a representative Low Pay Commission, excellently chaired by Sir George Bain, which took getting the right balance into account when the minimum wage was introduced. All my information was that if we got that right, it would have a positive effect. It did, and something like 2 million people benefited as a result. I think that I have answered all the questions.
ACAS Code of Practice on Time Off for Trade Union Duties and Activities
Considered in Grand Committee
I have pleasure in introducing the ACAS code of practice on time off for trade union duties and activities. Before this code can come into force, it needs the approval of both Houses. It provides practical advice and guidance on the operation of statutory rights to time off for trade union representatives and other union members.
The code covers entitlements for a range of trade union representatives including shop stewards, union learning reps and those union representatives who are consulted on a one-off basis when large-scale redundancies or business transfers take place. However, the entitlements apply where the trade union is recognised for collective bargaining purposes.
Much of the code has remained unchanged since it was first put in place 30 years ago, in April 1978. Since then, the world of work has changed significantly. New technology is widely available and has transformed the way we communicate. Working patterns are much more diverse, and the role of union representatives has progressed. During this period, the code has been revised as appropriate to keep up with changes to the law. However, there is now a good case for a more thorough revision.
In 2007, a large-scale review of the facilities and facility time of workplace representatives strongly supported the case for the revision of the ACAS code. As a consequence, my right honourable friend the Minister for Employment Relations wrote to the chair of ACAS asking his council to consider redrafting the code. ACAS is independent from the Government, and members of its council are drawn from leading figures in the employment relations field. The views of the council always carry great respect and draw on a range of sources.
I would like to take this opportunity to thank ACAS and its council for their work in preparing the revised code for us to consider. ACAS released an initial draft of the code for consultation in December 2008 and responses from that have shaped the draft of the code we have today.
I now turn to the substance of the code. Within this draft, ACAS has made some significant changes to its guidance. However, the legal framework that the code refers to has remained much the same. Therefore, I will focus on the areas in which the code has been developed.
As I have already stated, this revision updates the guidance in relation to changes in the modern workplace. It provides more guidance than before on the confidential and sensitive nature of communications involving union representatives. That will help employers in reassuring their staff that their communications with union representatives are not being monitored, while ensuring workplace security. Trade union representatives often have tasks that are demanding, complex and require great knowledge of employment law and the way the workplace functions. The provision of training has developed greatly in recent times with the widespread use of e-learning tools. That, too, is reflected in the guidance.
There is considerably more guidance on union representatives being given access to facilities at the workplace. By facilities, I mean the provision of workplace services such as office equipment, meeting rooms and stationery. These facilities will assist in communication and research in line with union representatives’ duties. It provides more information on the provision of cover for employees who take time off to perform trade union duties and activities. That is important at a time when there are increasing pressures in the workplace. Line managers are key to the smooth running and organisation of time off for representatives. It is for that reason the position of line managers is explored in more detail in this revision of the code.
The chairman of ACAS has produced a revised code that offers balanced, sensible and practical advice on time off for trade union duties and activities. It will be positive for both employers and unions in successfully interpreting and applying the law in their industrial relations. I strongly commend the code to the Committee for approval.
I thank the Minister for introducing the draft code of practice. As we debate it, we should bear in mind that it comes at a time of increasingly strained relations between some trade unions and employers. ACAS has a duty to provide practical guidance on the time off to be permitted by employers to trade union officials and members. It therefore produces this code of practice, which must be approved by Parliament.
While the general purpose of the code of practice is to aid and improve the effectiveness of relationships between employers and trade unions and offer guidance for employers, employees and trade unions, all of which is sensible, I would like to take this opportunity to ask the Minister a couple of questions. First, anyone who has read the newspapers knows that we face an economic crisis greater than anything in living memory. Honda workers have been on extended leave, many thousands of workers have been made redundant and the weekend press tells us, among other things, that BT is offering staff long holidays in return for a substantial wage reduction—yet here we are discussing leave for union representatives paid for by employers so that they can undertake union activities as if nothing has happened. Although I acknowledge the purpose of the code and our need to debate it, do the Government not understand that to the layman this sounds like fiddling while Rome burns?
My other question is more specific. In February, workers went on strike when Total employed an exclusively Italian and Portuguese workforce—not British workers but nevertheless all EU workers—to construct an extension at its Lindsey oil refinery. Sympathy strikes, which are currently illegal, sprang up quickly, and by 4 February, 22 other sites had been affected with an estimated 6,000 workers walking out. The dispute was settled in the end when Total offered 100 new jobs to be advertised by local contractors. I am not proposing a debate on whether Total or the union was in the right, but had a deal not been reached, which would have resulted in the Government being faced with a spate of illegal sympathy strikes, what would they have done? Perhaps I should ask what they will do when that happens.
We support these regulations. The noble Lord, Lord De Mauley, raises issues that I thought had long been resolved. It has long been accepted that engaging in trade union activities is an appropriate use of an employee’s time. That is perfectly legitimate, and it is appropriate for an employer to allow an employee to have the time off for that. That principle is long established, and it certainly would not be fit to re-open it.
I make one point on the documentation in front of us. The Minister tried to indicate the significant changes from the previous code, but in future, when we have a detailed code of practice, it might be helpful if the Explanatory Memorandum indicated exactly what material changes the Minister and his department think are being made. Otherwise, those of us reading it can find it quite difficult to follow the implications. Basically, I support the regulations.
The noble Lord, Lord De Mauley, talks about the impact at a time of increasingly strained industrial relations. In the current economic crisis, it is interesting to see some of the deals that are being negotiated as collective bargaining agreements. They are difficult deals—significant time off work on reduced pay, holidays and so on—and yet unions involved in collective bargaining have negotiated those deals. ACAS is trying to ensure that the situation is clarified in relation to time off. I do not take the view, to use a colourful metaphor, that we are fiddling while Rome burns. I think we are making a positive contribution to the development of employee relations. If employers use it in that way, they will gain as much as employees in a collective bargaining situation.
On revising the code in the current economic climate, we are not imposing any additional regulation or burden on business. The revised code will help business as it is made more relevant to modern workplace conditions. Allowing workers to have more time off will certainly not damage business because the revised code does not change the statutory entitlement for time off for trade union duties. Instead, the code assists business by providing more guidance on how it can manage the process of time off to enable union representatives to perform their functions both as employees and as representatives efficiently. Where that works well, as I quoted in situations like Honda or BT, there is a win-win scenario. I welcome the support from the noble Lord, Lord Razzall. He made a valid point about the material differences, which we need to take into account for the future.
On the Government’s approach to the Total dispute, I believe that the Gibson review is looking at the question of productivity and so on in those sorts of industries. I would not want to speculate on the future. The Government’s role has been to try to ensure that the appropriate organisations—ACAS and so on—have been involved to ensure that we end these disputes as quickly as possible.
Companies (Share Capital and Acquisition by Company of its Own Shares) Regulations 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Companies (Share Capital and Acquisition by Company of its Own Shares) Regulations 2009.
Relevant document: 18th Report from the Joint Committee on Statutory Instruments.
The draft statutory instruments that we are to debate this afternoon are an important part of our implementation of the Companies Act 2006. The Act reformed and clarified company law in many areas and brought company legislation together in one place. The Act makes it easier to set up businesses, gives investors greater information and confidence, and promotes shareholder engagement and effective dialogue between business and investors. The Act has been implemented in stages, and these statutory instruments relate to provisions which are due to come into force in October 2009. This staged approach gave companies time to prepare, allowed us to implement changes in parallel with EU requirements and allowed Companies House to update its systems to support the new measures.
The Companies (Share Capital and Acquisition by Company of its Own Shares) Regulations 2009 are the first of these regulations to be debated. These regulations amend three aspects of the Companies Act 2006 and they will be commenced on 1 October 2009. The first is to reduce from 21 to 14 days the minimum period of notice that a company can give its shareholders when it makes a rights issue. This change is being introduced in response to concerns that the time taken to raise capital by selling new shares could expose companies to market abuse and volatility. Fourteen days is the shortest minimum period allowed by the second company law directive.
The second of the three changes is a minor change in the rights of creditors of a company when the company reduces its capital by applying to the court. The regulations will change the Companies Act 2006 so that it is explicit that a creditor who wants to object to the reduction will have to demonstrate that the reduction would create a real likelihood of his or her not being paid. This simply brings the 2006 Act into line with a corresponding change already made to the Companies Act 1985 last year.
The third aspect of company law addressed by these regulations is the rules on the purchase by a company of its own shares, where there are two changes. The regulations will remove the current 10 per cent cap on a company holding its own shares, and they will extend the maximum period for which authorisation can be given for the company to purchase its own shares from 18 months to five years. Until 2003, when a company purchased its own shares, it had to cancel them. In 2003, the law was amended to allow a company to hold its own shares in treasury up to a maximum of 10 per cent of its share capital, in line with the maximum permitted by the second company law directive. That directive has now been amended to remove that limit, and these regulations would remove the limit from UK law, increasing the flexibility for companies to hold their own shares. The only significant dissent from these proposals when we last consulted was to this removal of the 10 per cent cap. One respondent argued that there was no evidence that any company needed this extra flexibility, and that there might be some risk of abuse. Other respondents supported the relaxation.
We considered the objection carefully. Shareholders have a number of other protections in this area; their approval is needed for any purchase of own shares, and they have pre-emption rights when treasury shares are resold. Taking these into account, we decided that it made sense to give companies more flexibility by removing the arbitrary 10 per cent limit. No concerns were raised in respect of the other change in relation to purchase of own shares—the extension of the period for which authorisation can be given.
In conclusion, I should make it clear that the amendments made by these draft regulations are minor adjustments to the rules on capital and shares but, at the margin, they will provide companies with some additional flexibility to manage their capital, without removing any necessary protection for creditors or shareholders. I beg to move.
I thank the Minister for introducing the regulations, which seem to contain rather a jumble of consequential changes in the law with regard to company shares and their creditors. I defer to the noble Lord, Lord Razzall, who is the only noble Lord present who was fully involved in debates on the Bill and who may be able to shed some more light on this. However, I shall make a few observations and ask a few questions.
These are subjects with which I have some rather dated familiarity. I am a chartered accountant and, among other things, I practised in the insolvency area in the late 1970s and early 1980s and, subsequently, through the 1980s and 1990s I advised companies as an investment banker in, among other things, raising money in rights issues.
So, first, as regards the reduction in the minimum period during which a rights issue may be left open, am I right in thinking that this does not affect the maximum period for which it may be left open? I do not think that there is a maximum period. Assuming that that is correct, and although I do not particularly object to what is being done here, I think that the Government’s complaint seems to have been directed primarily at the longer rights issues, such as those of HBOS and Bradford & Bingley. I cannot quite see how this move will improve things, and I suspect that this whole area is a bit more complicated than the Government think it is, but I very much look forward to hearing what the Minister has to say about it and indeed to seeing what difference it makes in practice.
My next comment concerns the moves as regards the rights of creditors to object to a reduction in a company’s share capital. Am I right in deducing that it limits creditors’ rights—that is, compared with what those rights are now? I understand that this is being done under an EU directive but I have to ask whether the Government really think it wise in the current conditions. Also, when exactly are, for example, France and Germany adopting this directive, or have they done so already?
As regards the length of time for which a company may maintain an extant right to buy in its own shares, I do not particularly object to increasing the period to five years. As regards removing the cap on the proportion of its share capital that a company may hold in treasury, I think I am right in saying that the position that we are moving to is the one that has operated in the US for many years. However, I wonder whether the Government have fully thought through the extent to which this risks increasing the opportunities for a company to manipulate its share price. Perhaps the Minister can say what the Government’s thought process has been on this. I hope that he can reassure me.
Lastly, I should also be grateful to hear—perhaps in writing afterwards if that is easier—what the position is as regards the period and the percentage in the other major EU countries.
I support these regulations. They are an important continuation of what is required under the Companies Act, with the Government having learnt from what has happened since the introduction of that Act. Having made a slight criticism of the Explanatory Memorandum during debate on the previous statutory instrument, perhaps I may say that I thought that this Explanatory Memorandum was extremely clear and very helpful, putting the pros and cons in a very effective way.
The first change to the Companies Act is aimed at reducing the period of notice for pre-emption rights issues by at least seven days, thereby enabling rights issue processes to be much shorter. One of the benefits not put in the Explanatory Memorandum is the significant cost-saving that will arise to the company. When rights issues are underwritten and sub-underwritten, where the underwriter has to make a commitment for the capital to be available for a period, the longer the period of the rights issue, the larger the fee the underwriter charges. Therefore, in the current climate, anything that facilitates a reduction in those fees, which in turn will facilitate more companies being able to afford a rights issue through the market, has to be commended.
I have no comment on the second element of the Act to be changed. We clearly need to come into line with the relevant European directive.
On the third issue, the noble Lord, Lord De Mauley, made a very good point, which is whether this increases the opportunity for market manipulation and abuse in relation to a company’s own shares. I think that the answer that the Minister will probably give is set out on page 23 of the Explanatory Memorandum, which explains that significant other provisions are available to prosecuting authorities, or indeed the City, in the event of suggested manipulation. I think that is the answer. If a company is to have the ability to buy its own shares, it seems a little strange that it should be restricted to 10 per cent and that it can have the resolution for only 18 months. If we are going to accept the principle, we might as well go the whole hog, which these regulations do, and rely on other provisions to give the necessary protection against manipulation or abuse.
To answer the questions put by the noble Lord, Lord De Mauley, creditors will not be affected by the removal of the limit on treasury shares. Creditors have the protection that their own shares can generally be purchased only out of distributable profits. Once the shares are purchased, the creditors’ interests are not affected by whether the shares are cancelled or held. Shareholders’ agreement will still be needed to authorise the purchase of owned shares, and if and when treasury shares are resold, the shareholders will have a pre-emptive right to purchase shares pro rata to their existing holdings.
With regard to manipulation, as the noble Lord, Lord Razzall, implied, companies are still required to comply with the insider dealing regime under the Criminal Justice Act, the market abuse regime under the Financial Services and Markets Act 2000 and requirements under the listing rules. We believe that these will be more than sufficient to deter any sensible company from attempting to use treasury shares in this way.
The reduction does not affect the maximum period of notice for rights issues. The notice period is just one part of the rights issue process; for example, the company has to prepare and issue a prospectus. There was broad consensus that at the margin the reduction in the minimum notice period would be helpful.
I shall write to the noble Lord, Lord De Mauley, on whether France and Germany have yet implemented the directive.
The noble Lord, Lord Razzall, asked whether this is the appropriate time to introduce change. These changes are all deregulatory in nature, and there is no reason why introducing them now should cause problems for companies or their members. The majority of companies will not be affected immediately and may never be affected. They will apply only to companies that choose to do one of three things: raise capital through a rights issue, reduce their capital by application to court; or purchase and hold their own shares. None of these things is something that any company does every day, or even every year, so most companies will feel no immediate effect of these changes. However, any company that does one of these things may find that it has more flexibility after these changes are made.
The noble Lord, Lord Razzall, was right when he said that shortening the rights issue period will make underwriting cheaper. Other things being equal, shorter exposure to changes in the market should reduce risk and should, in general, reduce underwriting costs.
I am grateful to noble Lords on all sides for their contribution to this debate and hope that they will agree that this instrument will provide flexibility for companies when managing their capital.
Community Interest Company (Amendment) Regulations 2009
Considered in Grand Committee
We are today debating the draft Community Interest Company (Amendment) Regulations. The community interest company form was created by the Companies (Audit, Investigations and Community Enterprise) Act 2004 and the Community Interest Company Regulations 2005. In passing that legislation, we were creating a new type of company tailored for social enterprises that wanted to use the familiar company form but with the assurance that assets would primarily be used for the benefit of the community.
That legislation came into force in July 2005 and, since then, over 3,000 social entrepreneurs or social enterprises have chosen to register as community interest companies. The original legislation also created the office of the regulator of community interest companies as an independent officeholder with responsibility to oversee the sector and maintain public confidence in this new company form.
Before introducing the community interest company, we consulted widely on both the principle of this new form and how it should work in practice. One of the principles was that the community interest company would offer more flexibility and choice to the social enterprise sector. It was intended to complement the existing and well established forms, such as charities or industrial and provident societies, which are also commonly used in the sector.
Although the community interest company has not been in existence long, there have been a number of related legislative changes over that time. We have also learnt from the experience of the companies and their advisers, as well as the regulator, how some aspects of the regulations work in practice. The draft amendment regulations will therefore update the regulatory framework for community interest companies to take account of these developments.
As I have said, the original intention was that the community interest company would sit alongside other legal forms in the sector, and we consider that enterprises should have the option to move between the various legal forms available where this is appropriate. So, the 2004 Act permitted community interest companies to convert to become English or Welsh charities or vice versa. The original legislation also anticipated that we would use regulations to permit conversions both from Scottish charities and to the community benefit form of industrial and provident society, once provisions relating to those two forms were in place. The office of the Scottish charity regulator has since been established and a statutory asset lock is now available to community benefit societies. With those provisions now in place, the draft regulations now permit Scottish charities to convert to community interest companies and permit community interest companies to convert to the asset-locked form of community benefit society.
The draft amendment regulations make a number of other changes in the light of experience or to seek to improve the original drafting. These include, for example, clarification of the community interest test to provide more certainty to the regulator in her decision-making. There are also a number of amendments to the provisions which a community interest company is required to include in its articles. The effect of these changes is essentially to allow the companies themselves to determine their approach on certain matters, such as the appointment and removal of directors and casting votes, rather than requiring them by statute to follow a prescribed course.
Finally, the draft regulations implement consequential amendments to the regulations arising from the Companies Act 2006. In particular, the 2006 Act introduces changes to the information contained within a company’s memorandum and articles which need to be reflected in the regulations governing community interest companies. In summary, therefore, the draft regulations aim to update the community interest regulations for the benefit of existing and prospective community interest companies. I beg to move.
I thank the Minister for explaining the regulations, which I do not believe are particularly controversial. However, perhaps I could ask a few questions. As set out in the Explanatory Memorandum, according to the Department for Business, Innovation and Skills:
“To minimise the impact … on firms employing up to 20 people, the approach taken is to maintain a light touch regulatory framework for CICs”.
Can the Minister kindly explain how the office of the regulator of community interest companies achieves that? Is it, for instance, subject to regulatory budgets and sunset clauses? How does it interact with the Better Regulation Executive?
Secondly, how many people does the office of the regulator of community interest companies employ and how much does it cost to run each year? How is its performance assessed? Lastly—a relatively minor question—I believe that the order will remove the right of a community interest company chairman to cast a deciding vote in a boardroom ballot. There was an apparently valid reason for the chairman having a casting vote. Can the Minister, therefore, explain what happens if the board is split equally on an issue?
I am happy to support these regulations. I have one question about paragraph 8 on page 2 of the Explanatory Memorandum, which states:
“In two instances, where there were mixed views raising significant concerns, these provisions have been removed”.
Is the Minister in a position to say what those provisions were?
If the board is split equally, any proposal put to the board falls, so there is no deadlock. Those are the usual rules of debate: if there is no majority and there is no casting vote, the proposal falls.
Some proposals were dropped in the light of the responses. I was asked what those proposals were and what the concerns about them were. One proposal was to permit the regulator to take into account the impact of a prospective community interest company’s activities on the wider community and public interests. Several respondents felt that this would fundamentally alter the role of the regulator, involving her in potentially contentious and subjective decisions. It was also noted that on many issues there would be differing opinions on what constituted community benefit.
Of the two other proposals, the first was to commit public or regulatory bodies—for example, local authorities that may have set up a community interest company—to make representations to the regulator for a share of any residual assets in the event of a winding up. The final one was to deal with the consistency of the regulator, requiring the regulator’s consent to a transfer of assets for less than full value to an asset-locked body, but not requiring consent when the company makes a transfer for the benefit of the community. In both cases, while there was support for the aims of the proposals, practical issues were raised, which we felt needed further consideration with stakeholders.
The noble Lord, Lord De Mauley, asked how many people were employed by the regulator, the answer to which is eight. The cost in the current financial year is £515,000. We will write to confirm details of the regulatory framework. There may have been a question about performance, as well. I believe that I have covered all the questions and commend the order to the Committee.
Companies Act 2006 (Consequential Amendments) (Uncertificated Securities) Order 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Companies Act 2006 (Consequential Amendments) (Uncertificated Securities) Order 2009.
Relevant document: 18th Report from the Joint Committee on Statutory Instruments.
The final debate concerns three draft consequential amendments orders: the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009; the Companies Act 2006 (Consequential Amendments) (Taxes and National Insurance) Order 2009; and the Companies Act 2006 (Consequential Amendments) (Uncertificated Securities) Order 2009.
The Companies Act 2006 updates company law to ensure that it reflects modern needs. The Act, which received Royal Assent in November 2006, has been implemented in phases over the past three years and these draft orders relate to the provisions which are being commenced as part of our final implementation of the Act on 1 October 2009. An earlier consequential amendments order was made in 2008 relating to those provisions, commencing on 6 April 2008 and 1 October 2008. A number of consequential amendments have also been made in two commencement orders made under the Companies Act 2006.
The Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009 makes consequential changes to many different pieces of legislation, going as far back as the Newspaper Libel and Registration Act 1881. The amendments can be broken down into three broad areas. First, there are the consequential amendments to existing company law—for example, the remaining parts of the Companies Act 1985 relating to company investigations. Secondly, there are the amendments to insolvency legislation, which are required because the 2006 Act removes the link between the Companies Act 1985 and the Insolvency Act 1986. Finally, this order makes consequential amendments to other primary legislation that refers to, or includes concepts from, the Companies Act 1985 or the Companies Act 1989. In many cases, we have simply updated references to provisions in the 1985 Act.
The taxes and national insurance order similarly amends legislation for which Her Majesty’s Revenue and Customs is responsible which uses Companies Act references, definitions and concepts.
The uncertificated securities order makes consequential amendments to the uncertificated securities regulations 2001. These set out the legislative structure for CREST, the computerised system that transfers shares, gilts, corporate bonds and money market instruments electronically without using paper certificates. In all but two areas— refusal to register a transfer of shares and information about the state of the register of members—the order simply replaces old references to various definitions and provisions of the Companies Act 1985 with new ones relating to the Companies Act 2006.
All three orders make two types of consequential amendment. The first type relates to references to company law in other Acts which are changed to refer to the equivalent provisions and definitions in the 2006 Act. These are purely mechanical amendments. For example, a reference to “the Companies Act 1985” is simply changed to “the Companies Act 2006”.
The second type of amendment relates to a change in the substance of company law. For example, some of the information contained in the old-style memorandum is now contained in the articles of association. That change must be reflected in other legislation. The overall intention of all these consequential amendments is to ensure that the legislation which is amended continues to operate in an effective way and is easy for the reader to use. I commend these orders to the Committee.
Yet again, I thank the Minister for his continuing dedicated work this afternoon in explaining these orders. They do not sound earth-shattering or controversial, but perhaps I have allowed myself to be worn down by the seemingly unending stream of statutory instruments that we have debated this afternoon. At least these are the last. I restrict myself to asking two questions. First, according to the Treasury, the uncertificated securities regulations are likely to undergo further significant change in the course of 2009-10. Will the Minister give any indication as to what those changes will be? Finally, will 1 October 2009 see all remaining Companies Act 2006 provisions entering into force? If not, when will the remaining provisions become law?
I also welcome these orders. The only point that I would make is more for the publishers of legal textbooks than for the Government. I appreciate that this is an attempt to have a user-friendly document, but one of the problems of not consolidating legislation is that practitioners have to trail through the books to trace how the regulation fits in. As the Minister will be aware—certainly, his department will be—I argued strongly when the original legislation came in that it should be consolidated, and eventually the Government agreed.
It is quite difficult to see how this could have been done in a consolidated way because we are talking about other pieces of legislation that are not necessarily only about company law. However, as legislation and regulations become more and more complicated for the practitioner to follow, I often say that it is really only for the benefit of Butterworths.
To answer the noble Lord, Lord De Mauley, one further change will incorporate the settlements of shares and the open-ended investment of companies into the CREST system. He asked whether these were to be the last instruments to be made as part of the implementation of the Companies Act 2006. I am sure that he will be pleased to know that we expect to lay two further draft affirmative instruments relating to sensitive company names. We also expect to make further instruments, subject to negative resolution, by early September, including the registrar company fees regulations.
On consolidation, the noble Lord, Lord Razzall, is correct that we will make further amendments. I take his point about complexity. We have to make consequential amendments because the law that they amend would no longer work properly without them. In other cases where legislation refers to provisions of the Companies Act 1985, which has been repealed, the consequential amendments will help those using the legislation—that is what it says here. Without the amendments, the reader may not be aware of relevant changes to company law. We are also ensuring that policy changes within the Companies Act 2006 are applied to other relevant legislation.
Companies Act 2006 (Consequential Amendments) (Taxes and National Insurance) Order 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Companies Act 2006 (Consequential Amendments) (Taxes and National Insurance) Order 2009.
Relevant document: 18th Report from the Joint Committee on Statutory Instruments.
Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009
Considered in Grand Committee
That the Grand Committee do report to the House that it has considered the Companies Act 2006 (Consequential Amendments, Transitional Provisions and Savings) Order 2009.
Relevant document: 18th Report from the Joint Committee on Statutory Instruments.
Committee adjourned at 5.27 pm.