Orders of the Day — Employment Bill

House of Commons, 8 July 2002.

Michael Martin (Speaker, Glasgow Springburn)

I must draw the attention of the House to the fact that privilege is involved in Lords amendments Nos. 1, 2, 4, 7, 9 to 15, 17, 21 to 24, 76, 77 and 79, which are to be considered today. If the House agrees to these Lords amendments, I shall ensure that the appropriate entry is made in the Journal.

Clause 2 — Statutory Paternity Pay

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move, That this House agrees with the Lords in the said amendment.

In Committee, the hon. Member for Runnymede and Weybridge (Mr. Hammond) voiced concern that the Bill as drafted may not clearly give effect to our policy intention on an employer's liability to pay paternity pay to an employee in certain circumstances. Such circumstances were those in which an employee leaves his employer's employment at some point before the child is born, or placed in the case of adoption.

I undertook at the time to examine clause 2 closely to ascertain whether any amendments were needed to give effect to our policy intention in that regard. I do not think that there was or is any disagreement about the fundamental policy intention—that is, that it would not be right for an employer to be liable for payment of paternity pay to an ex-employee who had left his or her employment some time ago. However, the hon. Member for Runnymede and Weybridge made a valid point, and we agree that the Bill as drafted did not set out the policy unambiguously.

The hon. Gentleman will have noted that our package of amendments subsumes some of those that he suggested in Committee, but that, to give full effect and ensure consistency throughout the Bill, they are somewhat more comprehensive. We tabled this group of amendments in the other place, and I can assure the hon. Gentleman that they make it crystal clear in the Bill that an employee will be entitled to statutory paternity pay from an employer only if he or she is working for that employer up to the date of birth or placement of the child, and not if he or she has left that employer's employment at some point beforehand.

Amendment No. 22 stands slightly apart and simply tidies up part of new section 171ZE to ensure greater consistency with statutory maternity pay and statutory adoption pay.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am grateful to the Minister for his remarks so far. He is right that this set of amendments clarifies beyond doubt the aim of the Bill. The concerns expressed in Committee arose because the language used in drafting the Bill had been picked up from other legislation dealing with statutory maternity pay.

Statutory maternity pay covers a considerably longer period than that proposed for statutory paternity pay, and some of the expressions used in the original drafting language implying that a person who went on statutory leave had ceased their employment might be appropriate phraseology where the person will be away from the workplace for a period of months, but members on both sides of the Committee, including the Minister, felt that the wording was not appropriate if the person is to be absent from the workplace for a maximum of two weeks. The Minister said at the time that he would study the wording carefully and ensure that what was written into the Bill did indeed give effect to the policy intention, about which there was never any doubt in anybody's mind.

That is a good example of the way in which consideration in Committee often throws up valuable insights into drafting. The draftsman clearly understood what he was being asked to do, and for understandable reasons modelled the wording on that for the statutory maternity pay regime, but it was evident to those of us who were not involved in the drafting process and who were reading the Bill as laymen that there was the possibility of misinterpretation of the language used in the clause. I am pleased to say that the amendments tabled by the Government in the other place, which went rather farther than the amendments proposed by the Opposition in Committee, clarify eligibility in relation to former employment and leave anyone who reads the Bill in no doubt about the intention.

Graciously acknowledging the validity of the points that we had raised, the Minister said in Committee that, having considered the matter,

"we will either table the hon. Gentleman's amendment"—

that is, my amendment—

"giving him the credit and royalties that he deserves, or a similar amendment that will clarify what we are saying."—[Official Report, Standing Committee F, 10 January 2002; c. 328.]

The Minister is generous in the extreme, but I have to tell him that no brown envelope has yet come winging its way to me with any royalties.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Blame the post.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister anticipates the remark that I was about to make. He is, of course, an expert on these matters, and with or without credit and royalties, I am delighted that we have resolved the issue.

However, a second substantive point arises from this group of amendments. I will call it the motive test. One of the amendments deletes subsection (2)(c) of new section 171ZA to the Social Security Contributions and Benefits Act 1992, which stated:

"that he has ceased to work for the employer, and done so for the purpose of caring for the child or supporting the mother".

The same provision is deleted in relation to birth and adoption entitlements. Clearly, the primary reason for such deletion is that the reference to ceasing to work for the employer is no longer relevant as a result of the substantive amendments in the group, to which the Minister referred. On the face of it, however, that leaves us without a motive test. It was always intended that paternity pay would be payable only where the purpose of taking the leave was caring for the child or supporting the mother in the case of birth, and caring for the child or supporting the adopter in the case of adoption.

The amendments provide an alternative method of introducing a motive test, but they include it in a different provision: new section 171ZE to the Social Security Contributions and Benefits Act 1992, which deals with rate and period of pay. It seems that we are being asked to delete the concept of a motive from the definition of entitlement and to put the motive test back into the new section that deals with the rate and period of pay. As I understand it, the effect is that under new section 171ZA—and, indeed, under new section 171ZB in relation to adoption—somebody could be entitled to maternity pay, but might not receive it because section 171ZE reintroduces the concept of a motive test at the point at which payment is dealt with.

Has the Minister thought through the question whether there are any implications of moving the motive test from the sections dealing with entitlement and including it instead in new section 171ZE? The provision could have been left where it was; there is no reason at all why the motive test could not have remained in new sections 171ZA and 171ZB. Presumably, somebody has taken a conscious decision to reinsert it in a different place, and before we decide how to proceed, I would like to be sure that that has no significance.

While we are dealing with these amendments, perhaps we could again touch on the issue of policing and enforcement, about which we had a little discussion in Committee. Clearly, new section 171ZE includes a motive test that will apply before payment is to be made. I am concerned to ensure that employers are not required to police the test and make what could be very difficult subjective judgments about whether the employee intends to care for the child, mother or adopter in taking statutory leave and receiving statutory pay.

In particular, will the Minister explain how he intends to ensure compliance with that motive test? For example, will a self-certification requirement be included in regulation, so that an employee who announces his intention to take statutory paternity leave and asks his employer to pay statutory paternity pay will make some form of simple declaration to the employer to the effect that he intends during the course of that leave to care for the child, mother or adopter? In those circumstances, I would imagine that the employer would be exonerated if it turned out that the employee had gone on a fortnight's holiday to Las Vegas during the period of statutory paternity leave. Any redress against the individual would be a matter between the Inland Revenue as the reimbursing authority and the person taking the statutory leave and receiving the statutory pay.

I hope that it is clear that the Government are not seeking to place employers in the invidious position of having to delve into the personal living and family support arrangements of their employees. There must be some arrangement whereby the employer can be clear as to the course of action that he has to follow, without any risk of redress, or of finding that the Inland Revenue has refused to reimburse an amount that he has paid in good faith following an employee taking statutory paternity leave, on the ground that the employee did not satisfy the motive test now being removed from the new section.

I would be grateful if the Minister could deal with those questions. Then we can see how to proceed.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Apart from the royalties question, I did give due credit to the hon. Member for Runnymede and Weybridge. It was an exemplary Committee in the way in which various items were raised. It was scrutiny at its best—[Interruption.] "Hear, hear" say members of that Committee.

The hon. Gentleman raised the point about the motive test. As he mentioned, amendment No. 21 seeks to ensure that pay, like leave, should be available only where the employee has taken time off work for the purpose of supporting the mother or caring for the child, which would otherwise have been lost from the drafting. That provision is reinstated in the new section relating to the rate and period of pay. It would be unusual for someone to seek to take two weeks off work and not seek to be paid for those two weeks. We have looked at this very carefully and we are confident that the change does not lose the important point that we were trying to preserve: there has to be a genuine motive for taking the leave.

On the issue of self-certification, we do not believe that this is different from any other form of leave. Employers should not be asked to delve into the private concerns of their employees; it was an important principle that we established. Would someone claim for two weeks paternity leave and take that two weeks in Las Vegas? That it is unlikely. Even when we have finished applying the biggest increase in maternity leave, which is mirrored in paternity leave and maternity pay, since 1948, paternity leave will still be up to the grand total of £100 a week.

It is unlikely that someone would seek to use paternity leave to holiday in Nevada. Nevertheless, if they do try to do that, it will be a matter for the employer to deal with in the normal way—as a disciplinary matter. People who seek to take other forms of leave when they are misleading the employer are in the same position.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister says that it would be a matter for the employer to deal with as a disciplinary issue, but to the extent that the employer is being reimbursed by the Inland Revenue, it strikes me that it is more a question of fraud against the Revenue than a matter of direct economic concern to the employer. Is the Minister saying that it will be left entirely to the employer to police the provision and to take any necessary action?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

No, I am not. I am saying that, in terms of the checks that are carried out, if an employer obtains evidence of an employee taking leave in a way that is not covered by the Bill, it would be a disciplinary matter for the employer to deal with. The Inland Revenue, on the other hand, would use the cruel and unusual punishments that are open to it to pursue an individual along those lines. I am not saying what the hon. Gentleman suggested at all.

Mark Prisk (Conservative, Hertford and Stortford)

There will clearly be a transfer of money in terms of payments. Has the Minister made a regulatory impact assessment of the administrative costs to businesses—particularly small businesses—of the changes?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Gentleman returns to a theme that we know well from Committee. I remind him that the response from small businesses was overwhelmingly positive in respect of adoption leave, to which the provisions also apply, because an adoptive parent can take two weeks paternity leave. In fact, their biggest single comment was that this should have happened a long time ago. On paternity leave, there was complete acceptance that it was right that fathers should have time to spend with their new-born babies. The basic point that businesses made was that they should not be expected to pay paternity leave. They also made the point that the Government should expand the number of small businesses that would be able to claim back 105 per cent. of maternity and paternity pay—the two rules are mirrored. We have taken into account the views of small businesses in all those respects.

Mark Prisk (Conservative, Hertford and Stortford)

My question was on administrative costs, not on the pay itself. I understand what the Minister has said on that point, and I share those motivations, but I am seeking an answer on the costs and administrative burdens now being put before the House that have come from the other place.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

On the amendments carried in the Lords, we are doing precisely what the hon. Member for Runnymede and Weybridge asked us to do, which is to make it absolutely clear that when individuals take such leave, the only responsibility that the employer will have will be for existing employees. There was some ambiguity in the previous wording, but small businesses will welcome the changes.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister has just referred to employers being able to recover 105 per cent. of the amounts paid to employees. For the avoidance of any ambiguity, will he confirm for the record that that is 105 per cent. of the amount paid, to include the employer's national insurance contribution, so that it will, in fact, be less than 100 per cent. of the cost to the employer that is being recovered?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Yes, I confirm that. It will work out at about 104 per cent. when the complex statistics are taken into account.

I thank the hon. Member for Runnymede and Weybridge for recognising that we have sought carefully to take his views into account and incorporate them into the amendments. He should be reassured by the fact that our moving the provision on motivation from amendment No. 21 to another part of the Bill still secures the basis of that motivation.

Philip Hammond (Conservative, Runnymede and Weybridge)

As the Minister is obviously about to finish, may I ask him specifically to give an assurance that an employer acting in good faith making a payment of statutory paternity pay will not find himself unable to get reimbursement because the Revenue has determined that the employee does not satisfy the motive test now being inserted into new section 171ZE?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

If the hon. Gentleman will forgive me, I will not give him an answer now; I will look into the matter to make sure that that is the case, and I will write to him.

Lords amendment agreed to. [Special Entry.]

Lords amendments Nos. 2 to 24 agreed to. [Some with Special Entry.]

Clause 16 — Interpretation

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move that this House agrees with the Lords in the said amendment.

Michael Martin (Speaker, Glasgow Springburn)

With this we may take Lords amendments Nos. 38 to 45, 61, 76, 77, 79 and 81 to 87.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The amendments, although not related, are all technical, which is why they have been grouped together.

Lords amendment No. 25 corrects an oversight on our part by including the equivalent of the Department of Trade and Industry in Northern Ireland, the Department for Employment and Learning, in the data-sharing provisions. The Department for Employment and Learning, like the DTI, may need access to high-level statistical information to assess how the schemes are working. The term "the Department" is defined in clause 16; our amendment simply includes the Department for Employment and Learning, as well as the Department for Social Development, in the data-sharing provisions.

Although many of the Bill's provisions do not extend to Northern Ireland, we expect that Northern Ireland will make its own provisions for paternity and adoption leave and pay. We also expect that the Inland Revenue will be responsible for the operation of those schemes, as it will be in Great Britain. Because the Inland Revenue's responsibilities are UK-wide, however, we have to legislate in a Westminster Bill to enable it to take on these responsibilities. Clause 16 is one of the provisions that must therefore extend to Northern Ireland.

The Department for Social Development in Northern Ireland has responsibilities equivalent to those of the Department for Work and Pensions in Great Britain, and the Department for Employment and Learning in Northern Ireland is the equivalent of the DTI in Great Britain. The same good reasons why the Inland Revenue and Departments in Great Britain may well need to exchange information on statutory paternity and adoption pay apply equally to the Inland Revenue and Departments in Northern Ireland. The amendment ensures that Departments in Northern Ireland will be able to take a joined-up approach to statutory paternity and adoption pay, in the same way as Departments in Great Britain.

Lords amendment No. 38 is a technical amendment that reverses the order of clauses 32 and 33. Clause 33 deals with the presentation of complaints to tribunals. It makes sense for it to precede clause 32, which is about consequential changes to time limits for making complaints to tribunals. Clause 32 also refers consequentially to schedule 4, but it is clause 33 that introduces that schedule.

Lords amendments Nos. 39 to 45 are minor technical amendments to clause 37, which allows employers to use a letter of engagement or a contract of employment to satisfy the requirement to provide employees with a written statement of employment particulars. As a written statement must give a date by reference to which it operates, an alternative document intended to fulfil the same function must also give such a date. However, the original text of clause 37 refers only to

"the date of the document".

That might have led to uncertainty, as the date of any particular contract of employment may not always be clear.

Lords amendments Nos. 39 to 44, taken together, clarify the position. They provide that when an alternative document is intended to fulfil the written statement requirements, the date by reference to which it operates for that purpose is the date on which it is given to the employee. New section 7B(2) of the Employment Rights Act 1996 serves no useful purpose once the date of the alternative document has been clarified by Lords amendments Nos. 39 to 44, and it is therefore removed by Lords amendment No. 45.

Lords amendment No. 61 provides that clauses 45 and 46, relating to fixed-term work, will come into force as soon as the Bill receives Royal Assent, thus allowing the fixed-term regulations to be laid immediately. That will give employers and employees more time to prepare for their coming into force, which should ensure compliance with the regulations. Lords amendments Nos. 76 and 81 to 84 are technical amendments to schedule 7. They simply ensure that the appropriate minor and consequential amendments concerning statutory paternity and adoption pay are made to the Social Security Administration Act 1992 and the Employment Rights Act 1996.

On Report in the other place, Lord Sainsbury of Turville introduced five amendments—Nos. 77, 79 and 85 to 87—relating to clause 47, which deals with flexible working. They concern an exemption for the armed forces, and the provision by the Advisory, Conciliation and Arbitration Service of binding arbitration in cases where employer and employee cannot agree.

Lords amendments Nos. 85 to 87 relate to the proposed exemption of the armed forces from the flexible working provisions. As was explained in the Lords, the Bill as previously drafted applied those provisions to the armed forces, but because all members of the armed forces are—uniquely—liable to operational deployment at little or no notice if national interests so require, it was impractical to apply long-term flexible working arrangements, as envisaged in the new right to request. Accordingly, we concluded that the new provisions should not apply to them.

It is worth noting that the armed forces will continue to seek to comply with the spirit of the legislation, subject always to overriding operational requirements. They fully recognise the benefits of flexible working to individuals and their organisations.

George Osborne (Conservative, Tatton)

I understand that the armed forces have overriding operational requirements, but does the Minister accept that many private businesses also have such requirements, and that they cannot simply give time off to employees who want to take a holiday at a given moment?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The work and parents taskforce—which consisted of representatives not only of business, but of small businesses in particular—recommended that the right to request be extended as widely as possible. I accept that there are difficulties for businesses, but we and the taskforce successfully overcame them all in formulating these proposals. In the jargon of the day, the taskforce thought small first, and the legislation includes provisions that are aimed at helping small businesses in particular. However, we and the taskforce felt that allowing flexible working for parents of children up to the age of six was beneficial to businesses. In many cases, skills were lost from the workplace because women, in particular, could not combine the pressures of their domestic lives with their professional responsibilities.

Philip Hammond (Conservative, Runnymede and Weybridge)

We have rehearsed this argument many times, but I still cannot understand how it benefits a firm that already operates good practice to impose such practice on its competitors. Surely we should encourage a climate in which good practice generates competitive advantage, thereby creating a virtuous spiral of employers competing with each other in offering such practice.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

As the hon. Gentleman says, we have rehearsed this argument many times, and I agree with him completely in terms of work-life balance and people's ability to care for elderly parents, or to pursue hobbies. We are dealing with those issues through measures such as the work-life balance challenge fund. Employers For Work-life Balance—an organisation that was set up three years ago, and which is completely independent of Government—is also playing an important role. However, we decided that, for parents of small children, it would take a generation for best practice to work in the way that the hon. Gentleman suggests.

We decided that everyone has a stake in bringing children up properly and that wider social issues are involved. The introduction of a measure that is not a right to work flexibly, but a right to request to work flexibly—and that puts a duty on employers to consider such requests seriously—is a balanced approach. It will give thousands of parents the opportunity that they have not had before—or perhaps in some companies, such as those to which the hon. Gentleman referred, the courage and the confidence—to suggest to their employers that if they started work at 9.15 am rather than 9 am, they could drop their kids off at school, which would make their working lives much easier. We have a difference of view in relation to working parents, but the proposals were widely supported in two years of exhaustive consultation.

George Osborne (Conservative, Tatton)

Surely the armed forces wish to be family-friendly employers. Since an employer may turn down a request for flexible working, why should not the armed forces face the same burden that the Government will put on private business?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

As I said, the armed forces intend to comply with the spirit of the legislation. They raised some practical concerns in relation not to their civilian staff, who will be governed by the measures, but to their military staff. Even in a case in which a member of staff has put forward a perfectly reasonable request, the armed forces may not have the luxury of granting it, because circumstances may mean that they cannot implement those arrangements. As hon. Members will know from discussions in Committee, we thought that we could apply the provisions to the armed forces, but in practice and after consultation with them it was felt that it would not be possible. That is why we have introduced the exemption.

Lords amendments Nos. 77 and 79 provide for ACAS conciliation and ACAS binding arbitration schemes for disputes concerning flexible working. The main priority of the flexible working provisions is to foster dialogue between parents and employers to find a flexible working pattern to suit them both. As part of that commitment, we always intended that there should be a binding arbitration scheme prepared by ACAS to deal with disputes regarding requests for flexible working that cannot be resolved in the workplace. The minor and technical amendments introduced in the Lords allow us to do this.

The provision for a scheme relating to flexible working also helps to ensure that as few cases as possible end up at employment tribunals. Because the arbitration is binding, those who opt to use the scheme also waive their right to have their case heard at a tribunal.

Philip Hammond (Conservative, Runnymede and Weybridge)

Can the Minister confirm for the record—because the bigger picture is sometimes not visible when we consider Lords amendments—that we are talking about arbitration on whether the proper procedures have been followed, not on the substance of the request for flexible working or the employer's decision that he cannot accede to it?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

We are talking about whether the request was given serious consideration. Arbitration may also address questions of fact. We are not asking a tribunal or ACAS to second-guess an employer's decision.

I believe that the flexible working provisions lend themselves very well to an ACAS scheme. Disputes arising under the provisions will be relatively straightforward, concerning whether procedures have been contravened or if a decision by an employer to reject an application has been made on the basis of incorrect facts. Those are essentially factual rather than legal issues.

Lords amendment No. 79 will have the additional effect of ensuring that conciliation is also an option in the resolution of any disputes arising out of the flexible working provisions. Again, that is entirely consistent with a key approach of this Bill: ensuring that alternative avenues of dispute resolution are available and contributing towards keeping employment tribunals to a minimum.

Philip Hammond (Conservative, Runnymede and Weybridge)

As the Minister said, these are largely technical and drafting amendments. I shall return to flexible working arrangements in view of the Minister's comments and the intervention of my hon. Friend the Member for Tatton (Mr. Osborne), but first I should like to deal with two minor points that the Minister will no doubt be able to resolve very simply.

Lords amendment No. 61 would insert into clause 55 two additional clauses, 45 and 46, to be excepted from the general rule that the provisions will come into force on such day as the Secretary of State appoints by order. When will they come into force? Will it be immediately after Royal Assent?

Secondly, a substantial number of changes to schedule 8 are contained in Lords amendments Nos. 88 to 95. They would remove pieces of legislation that were originally listed as repeals and revocations in schedule 8. Have those changes been made necessary as a result of amendments to the Bill during its passage in the other place, or are they errors that are being corrected? It would be useful to know.

On flexible working arrangements, and the changes being made under the slightly misleading heading of "minor, technical and drafting" amendments to exempt the armed forces from the provisions, I do not have the reports of the Committee's proceedings with me, but it would not surprise me if, in Committee, Opposition Members had asked the Minister about arrangements for the armed forces. On the face of it, I agree with the Minister. I understand that in employment law, the armed forces are often a special case that must be dealt with differently. However, as my hon. Friend the Member for Tatton pointed out, the right that is being granted is a right only to request flexible working and to have one's request seriously considered. The employer, whether it is the Army, the Air Force, the Navy or, indeed, Smith and Jones auto repairs down the road, can properly consider the employee's request and reject it on the ground that it cannot reasonably be accommodated within the working arrangements of the business. In many cases, the armed forces might legitimately turn down a request for flexible working arrangements, certainly for front-line staff. It is not quite so obvious that a member of the armed forces who is assigned to London-based office duties or cooks the meals in Admiralty House would be subject to the same considerations.

My hon. Friend made a good point: it is not obvious, on the face of it, why the armed forces must be treated differently. Throughout the consideration of these relatively new provisions, Conservative Members have been concerned that this is the thin end of the wedge. The right to have a request for flexible working considered could become—as a result of negotiations between the Government and trade unions, for example—something more, such as a prima facie right to flexible working unless the employer demonstrated why he could not deliver it. In other words, the burden of proof would shift to the employer.

If one adopts the conspiracy theorist approach—that the Government may have in mind moving the horizon, or removing the boundaries, in their forthcoming review of employment legislation—one can readily see why, at this stage, they might want to exclude the armed forces. There might not be a significant burden on the armed forces in considering a request from a person currently serving with the Royal Marines in Afghanistan and denying the request on the ground that it is not compatible with the working arrangements of that service man or woman. However, unless the armed forces were exempted, they could obviously be in some difficulty if the Government have it in mind to extend the provisions further. Will the Minister consider that point? Can he reassure me and my hon. Friend?

George Osborne (Conservative, Tatton)

I thank my hon. Friend for giving way just before he concludes his remarks. May I put a point to the Minister, who has, as my hon. Friend said, exhibited some muddled thinking? The Minister tells us that the armed forces are special and that there are operational considerations. We all understand that, but surely those reasons would be taken into account in the provisions, which—as we understand the Minister's comments—will also apply to businesses. They, too, will be able to claim that there are special circumstances and that they cannot give an employee time off.

Philip Hammond (Conservative, Runnymede and Weybridge)

My hon. Friend made his point succinctly. I am only sorry to disappoint him by telling him that I was not about to conclude my remarks.

It is easy for the Government always to decide that all these good ideas will not—apparently—impose serious burdens on private businesses or employers and are even good for them in some cases if they only were smart enough to realise it. Yet sectors under the Government's control, mysteriously, need to be exempted. We can see that from history: when sex discrimination legislation, for example, was introduced, the Government said, "Oh, but it can't apply to public services such as the police and the armed forces".

We are talking about a service for which the Government have direct responsibility. The senior commanders are, in effect, employers, and have privileged access to the Government and the ability to put their point across. Lo and behold, after arguing in Committee that there was no need to exempt the armed forces, the Minister has seen the light and decided that there is a need for such exemption. If Ministers were as close to, and received such direct communication from, the many hundreds of thousands of businesses that fear that they may be adversely affected by the measures, they might realise that there are equally pressing needs—not reasons of national security, but certainly reasons of business survival—that other employers would pray in aid.

Mark Prisk (Conservative, Hertford and Stortford)

My hon. Friend mentioned the Minister's rather late-in-the-day approach. Is my hon. Friend also concerned about the extraordinary costs? As he will recall, in Committee, it was slipped out that the net extra cost would be £173 million? Does he agree that those costs should have been made explicit from the beginning?

Philip Hammond (Conservative, Runnymede and Weybridge)

My hon. Friend is right: that is another £173 million on the additional burden of billions of pounds that the Government have imposed on business. It is a small sum compared with the total burden, but a significant one for individual businesses.

Rob Marris (Labour, Wolverhampton South West)

Will the hon. Gentleman give way?

Philip Hammond (Conservative, Runnymede and Weybridge)

I am happy to do so. I wondered how long it would be before we provoked an intervention from the Labour Benches.

Rob Marris (Labour, Wolverhampton South West)

Perhaps the hon. Gentleman can explain something, because there seems to be a contradiction in what he says. When he intervened on the Minister, he said that the proposal represents best practice and that it will give business a competitive advantage, but he now seems to suggest that it represents a burden on business. I think that it is a good thing for business and that it should be made statutory. Can he make up his mind and tell the House which way he is going on this issue?

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister's case is that this is a good thing for business and that the Government will therefore statutorily impose it on business.

Rob Marris (Labour, Wolverhampton South West)

rose—

Philip Hammond (Conservative, Runnymede and Weybridge)

Let me finish. The Minister's case seems wholly illogical. It is logical to say that this is a good thing for workers and therefore that we will statutorily impose it on business. In relation to another matter, it might be a good argument to say that it is a good thing for business and we will therefore statutorily impose it on workers. However, it cannot be logical and sensible to impose by statute something that is a good thing for the person who will be subject to it. What has happened to the concept of encouraging best practice to generate competitive advantage?

In Committee, we spoke at length about Investors in People. The Minister would readily acknowledge that employers who adopt best practice and achieve Investors in People awards gain a competitive advantage in the recruitment and retention of employees. That is a very important competitive aspect of business these days.

Rob Marris (Labour, Wolverhampton South West)

Of course the Minister can reply for himself, but I do not remember his specifying that the proposal was a good thing for business; he referred to the work-life balance.

Given what the hon. Gentleman has just said, would he take the same line with health and safety at work? It is a good thing for employers that their workers do not get killed at work, but he seems to be saying, "We'll just leave that to best practice." I do not want to put words into his mouth—he will tell the House what he thinks—but there seems to be a clear analogy with health and safety.

Philip Hammond (Conservative, Runnymede and Weybridge)

indicated dissent

Rob Marris (Labour, Wolverhampton South West)

The hon. Gentleman shakes his head, indicating that he broadly supports health and safety legislation. I am pleased to see that, as I am sure the House is, but there seems to be an analogy between the two issues. Which way is he going on this issue?

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman's analogy stretches the point. Legislation for health and safety in the workplace is primarily intended to protect employees, and it is obviously right that it should be imposed by statute. All I suggest to the Minister is that he should not seek to shelter behind the somewhat spurious argument that these measures are being imposed on business because they are good for business. The same argument was adduced in relation to union learning representatives.

It is suggested that business should not be worried because the proposal is good for business and therefore that those in business should be delighted that the Government are imposing it on them. Business will consider those issues. There is a very competitive marketplace for skilled labour and all sorts of labour that is in short supply.

Rob Marris (Labour, Wolverhampton South West)

Because of a Labour Government.

Philip Hammond (Conservative, Runnymede and Weybridge)

No, because of the legacy left to the Government by my right hon. and learned Friend the Member for Rushcliffe (Mr. Clarke).

A primary issue on the agenda of any business, certainly in large parts of the country where the supply of labour, good quality employees—

Michael Martin (Speaker, Glasgow Springburn)

Order. These are minor amendments, and the hon. Gentleman is straying into making a more general point. The best course of action would be to get back to the minor amendments and move on.

Philip Hammond (Conservative, Runnymede and Weybridge)

I am grateful to you, Mr. Speaker. I could not resist being provoked by the Minister's remarks into widening the debate, but the points that needed to be made have been made. I shall be interested to hear whether the Minister can answer the specific questions that I have asked.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I hope to deal with all the specific questions. First, on Lords amendment No. 61, clauses 45 and 46 will, indeed, come into force as soon as the Bill receives Royal Assent, which may happen as early as tonight. We could then table the regulations, which would allow us to give businesses plenty of time to deal with fixed-term regulations.

The hon. Member for Runnymede and Weybridge (Mr. Hammond) asked a rather mischievous question about whether some of the other Lords Amendments were intended to deal with errors.

Philip Hammond (Conservative, Runnymede and Weybridge)

Can the Minister tell the House whether there is any particular reason why clauses 45 and 46 will now come into effect on Royal Assent, rather than on a date to be specified by the Secretary of State? Is there a European Union deadline to comply with, or something of that nature?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

There is, but we are going beyond that anyway, as we have announced that, instead of introducing these measures on 10 July, we will introduce them on 1 October to give businesses more time. The Commission understands that a proper period to consider the matter will ensure better compliance.

On the technical amendments, all that I can tell the hon. Member for Runnymede and Weybridge is that they put right inaccuracies that have crept into a few of the paragraphs that amend the Employment Rights Act 1996. For "inaccuracies", one should read "errors", but the Lords stage was the opportunity to tidy them up. We believe that the Lords were absolutely right in agreeing to those amendments.

The hon. Member for Hertford and Stortford (Mr. Prisk) raised in an intervention the issue of the cost assessment being sneaked in in Committee. I want to make it clear that the work and parents part of the Bill—the flexible working part—was subject to the taskforce report. That report came out after the Bill was published, so it was not part of the original Bill. The cost assessment therefore came later. We published it as soon as we published the amendment, and, when we dealt with it in Committee, it was four or five days after the taskforce report had been published—

Mark Prisk (Conservative, Hertford and Stortford)

Two days.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Gentleman says two days. I am sure that that is right.

The hon. Member for Tatton (Mr. Osborne) raised some issues about the Ministry of Defence, and made the point that it and the armed forces are no different to other parts of business. They are different. Their circumstances are very different, as they are constantly on call. If other parts of business have the same problems, the Bill allows them the opportunity and the flexibility to quote those as reasons why they cannot accept the proposals.

George Osborne (Conservative, Tatton)

rose—

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I ask the hon. Member for Tatton to bide his time for a moment. The hon. Member for Runnymede and Weybridge suggested that the provision was related to the review of the Employment Relations Act 1999. As it is not part of the Employment Relations Act, it will not figure in the review of the operation of that Act. The hon. Member for Tatton will have an opportunity to argue that the provision has been such a roaring success that it ought to apply to the armed forces, however, when we review these measures in 2006, which was what the taskforce asked us to do, we will consider again whether to extend the provision, as I am sure that, in the meantime, it will have been a success.

George Osborne (Conservative, Tatton)

The Minister says now that the armed forces are a completely different kettle of fish when it comes to this legislation. That is not what he said in Committee. Unlike my hon. Friend the Member for Runnymede and Weybridge (Mr. Hammond), I have found the Hansard report of that Committee. The Minister was asked by my hon. Friend the Member for Boston and Skegness (Mr. Simmonds)—who, sadly, is not present to hear how perceptive his question was—whether the armed forces were different, and he replied that they were not. To paraphrase the Minister, he continued to say that they include many personnel who do not work on the front line, and that regulations will deal specifically with the problem of front-line troops, who would probably not have a request granted to them. Why has the Minister changed his mind so completely? Who has got at him?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Member for Tatton must have been dozing off. When he reads the Hansard report of this debate, he will read that, when I replied on this point about 10 minutes ago, I stated that I said in Committee that I initially thought that the armed forces could be included. Indeed, I well remember the hon. Member for Boston and Skegness (Mr. Simmonds) raising the issue as we belted through a series of amendments at 100 mph, and I remember saying precisely that. What I am saying again is what I said 10 minutes ago: our initial view was that the provision could be extended to the armed forces. Following consultation and discussion with colleagues in the MOD, we have decided that the exemption is right, but we will, of course, review that in 2006.

Philip Hammond (Conservative, Runnymede and Weybridge)

I have just been rifling through the provisions to see whether there are any other exemptions in the Bill. The Minister will correct me if I am wrong, but I do not think that there are. Will he explain to the House why the position of service men is different, for example, from that of merchant seamen? It might seem obvious that merchant seamen should also be exempted from the flexible working provision. However, before we discussed this amendment, I would have expected him to have said that merchant seamen would not be exempt because their employers would rightly be able to deny a request for flexible working because of the nature of the work. Why is that argument used in the case of merchant seamen but not in the case of Royal Navy personnel?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Gentleman gave the answer himself. The armed forces are exempt because of their unique working conditions. Personnel are liable to be deployed operationally right across the world at little or no notice if the national interest requires that. They may also be required to be available at any time.

The position of the Merchant Navy and the fishing fleet is precisely as the hon. Gentleman suggested. Employees in those sectors can make claims for flexible working, but the employer can, if he believes that he cannot meet the terms, reject the request by referring to a number of reasons that are set out in the legislation. The armed forces are different. I genuinely believe that they are unique. As I said earlier, civilian members of the Army will be governed by the provisions, but the armed forces are in a particularly unique position—if one can have a particularly unique position.

The hon. Gentleman asked whether the provisions would be good for business. We think that they will be good for business. In a world of work that has changed almost unbelievably over the past 30 years, never mind the past 50, many businesses are dealing with other issues and do not necessarily focus their attention on how they are better able to improve staff morale and reduce absenteeism. That point was certainly made to the work and parents taskforce. The provisions will be good for business.

However, there is a point about individuals and we touched on it in Committee. Plenty of people in a time of low unemployment and a tight labour market—the so-called "war for talent"—have the skills and qualifications that allow them virtually to dictate their own terms and conditions. That point was made time and again in our consultation with companies. However, another group of people are not in that happy situation. We are trying to take people who are not particularly well qualified off benefit and into work, but such people might be feel less empowered to go to their employer to make suggestions. For example, we must legislate for parents with small children, because they often have a greater need for flexibility and for a job that will enable them to tackle social and financial exclusion. That group is important, too.

It is not a question of competitive advantage. We are seeking to bridge the productivity gap between this country and our main competitors, so the issue is the United Kingdom, rather than individual companies, having a better competitive advantage. For all those reasons, I hope that the House will agree to the Lords amendment.

Lords amendment agreed to.

Clause 22 — Employment tribunals

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move, That this House agrees with the Lords in the said amendment.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The amendments concern the ability to pay employment tribunal and employment appeal tribunal cost orders and preparation time payments. The other place discussed a recent Court of Appeal case, Kovacs v. Queen Mary and Westfield college and the Royal Hospitals NHS trust, which ruled that a tribunal cannot take into account a party's ability to pay when making an award of costs.

It has long been a feature of the employment tribunal system that ability to pay can be a consideration in deciding whether to make a costs award or in setting the level of an award. The Court of Appeal decision effectively removed the tribunal's discretion in that respect, but we believe that it should be able to take ability to pay into account if it considers that appropriate.

Throughout our deliberations, we heard that tribunal rules and procedures differ from those of other courts because their nature is different and distinct. A large number of applicants may be in a vulnerable position because they have lost their jobs or are pursuing redundancy or wages complaints. We must be careful to ensure that the costs regime takes proper account of that.

Amendment No. 26 provides that tribunal regulations may include provision authorising a tribunal to take ability to pay into account when making a costs award. Amendments Nos. 28 and 30 do the same for preparation time awards and the employment appeal tribunal respectively. A tribunal will have the option of making a full award of costs, no award or a reduced award as it sees fit.

We have provided for a discretion, not a requirement. Making it a requirement that the tribunal must take into account a party's ability to pay when making a costs award would mean that a party of very limited means could bring or conduct a tribunal case wholly unreasonably with absolute impunity. That cannot be right. There would be no deterrent to unreasonable behaviour, we would weaken the tribunal's powers to control such behaviour and there would be no means of compensating a party who suffers as a result.

There may be circumstances, albeit rare and extreme, in which a party of limited means has behaved in such an unreasonable or vexatious way that a costs award may still be justified. I mentioned in an earlier debate that a tribunal concluded that a woman had brought a costs case against her husband purely as an extension of their matrimonial dispute. Such cases are of course rare, but they happen occasionally and tribunals must be able to deal with them.

Amendment No. 27 is a technical amendment to the new provision for preparation time awards. It replaces

"the time spent by that other party in preparing his case to"

with

"time spent in preparing that other party's case".

It has always been our intention that awards of preparation time that are made to respondents who employ staff should be able to take account of time spent by those staff who work on the case. Although the original wording of the clause would have allowed for that in the case of a corporate respondent because it can only act through its employees, the position of a sole trader who employs staff was less clear because it might imply that the provision for preparation time would apply only to time spent by him or her personally. The wording has therefore been amended to read "that other party's case" rather than "his".

The new wording also refers to "time spent" rather than "the time spent". That is a minor change. It reflects the fact that although parties will have to show that they have spent time on a case in order to be eligible for an award, they will not be required to produce detailed evidence of the actual time spent on it.

Amendment No. 29 is a substantial amendment. It provides that if regulations are made on costs and preparation time, they must include a provision that the tribunal may not award both costs and preparation time to the same person in the same proceedings. Throughout the Bill's proceedings, we heard from a number of highly respected organisations who work with applicants, such as the National Association of Citizens Advice Bureaux, the Law Society and the Trades Union Congress, that the threat of costs is increasingly being used to intimidate applicants into withdrawing their complaints regardless of whether the case is without merit or whether the applicant's behaviour has been unreasonable. They are concerned that awards could be higher as a result of the new provision for preparation time and that representatives would use that to intimidate applicants genuinely seeking redress for an infringement of their employment rights.

George Osborne (Conservative, Tatton)

Although these individual points may be good ones, the Minister seems to be straying from the original point of the Bill, which is to deter people from bringing various cases to an employment tribunal. Indeed, the Government originally had the idea of charging people to bring a case which they dropped before the Bill was even introduced. Is the Minister aware that he is in danger of watering down the proposals so much that they will not have any effect on the number of cases brought to a tribunal?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I hope that when the hon. Gentleman has heard the case he will feel differently. As he said, these are laudable amendments. It was never our intention to deter people who have a grievance or a claim against their employer from going to a tribunal, nor was it the intention of anybody in the Standing Committee to frighten people so that they would not pursue their case. The whole ethos behind the Bill stems from the fact that many disputes that go to employment tribunals could be sorted out in the workplace. That was the main thrust of our argument. We felt that between 30,000 and 40,000 cases could be solved in the workplace.

On this clause, we argued that in a system designed to discourage legal representation—the whole basis of the system is its informality—it would be ridiculous to award costs only to people who were legally represented, so that people whose time had been equally wasted but who represented themselves would receive no compensation. That is the basis of the amendment.

Judy Mallaber (Labour, Amber Valley)

Will my hon. Friend confirm that, in Committee, those of us who were concerned about preparation costs were seeking to protect not those trying to make a vexatious claim but the most vulnerable people? They would easily be intimidated by somebody with a phalanx of people working for him whose time could be costed, and they would therefore be vulnerable to the argument that they could be landed with a bill for, say, £10,000 in costs.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

My hon. Friend is absolutely right. She, along with other colleagues, raised those concerns in our debates. The amendment deals with them by providing that when the regulations on costs and preparation time are drawn up, they must include provision that a tribunal cannot award compensation for both costs and preparation time. We will consider many of the other points made about the limit on costs, particularly by my hon. Friend the Member for Wolverhampton, South-West (Rob Marris), which will be dealt with in the regulations.

The amendment has been welcomed by the Law Society as being fairer than the existing provisions. It has also acknowledged that

"given the nature of employment tribunals it may be legitimate to allow tribunals to include awards for non-legal costs".

We will consider how best to set that out in the regulations, and we will of course consult on those.

Philip Hammond (Conservative, Runnymede and Weybridge)

As the Minister said, the amendments do two things. They introduce changes that empower tribunals to take account of a person's financial circumstances in setting awards of costs or of compensation for preparation time and, separately, they introduce a prohibition on awards being made for both costs and preparation time.

On the latter point, I understand the concerns, expressed by the hon. Member for Amber Valley (Judy Mallaber) in Committee and again today, that people should not be denied access to a tribunal by the threat of exceptionally high costs being sought against them. The Government have gone about it in the wrong way, and in a moment I shall suggest to the Minister another way in which it could have been done.

First, I want to deal with the taking into account of a person's financial circumstances. On the face of it, the Minister's case for the amendment sounds reasonable—that in making an award of costs, the financial circumstances of the person against whom the costs are awarded should be taken into account. However, he did not underline the fact that costs are not routinely awarded in employment tribunal cases. We are talking only about cases where the applicant or defendant has acted frivolously or vexatiously: the ordinary applicant with a perfectly reasonable case who happens to lose it will not be clobbered for an enormous amount of costs. The Minister gave us the figures in Committee. In the most recent year for which figures were available, awards of costs were made in about 400 or 500 of the many tens of thousands of tribunal cases. In the vast majority of cases, the issue of costs will not arise, because it arises only where the applicant, defendant or respondent is judged to have behaved frivolously or vexatiously. It is not clear to me that in those circumstances the pecuniousness or otherwise of the applicant should be a principal consideration.

Another issue is involved. The ability to recover an award of costs is a protection for the innocent victim of such vexatious or frivolous behaviour. That could be an employer who is faced with a claim that is scandalously improper—I think that scandalous is one of the terms used, as well as vexatious and frivolous—but he still has to defend it. It could be an applicant with a rock-solid, cast-iron, open-and-shut case who is forced to argue their way through a completely implausible and vexatious defence mounted by the respondent. The ability to recover costs is an important protection for people who are involuntarily caught up in these matters as a result of having been on one end or the other of such behaviour. Employers in particular are forced to defend actions brought against them in the employment tribunal. In Committee, I quoted comments made to me by the chairman of a relatively large publicly quoted company, who would not want to be named for obvious reasons. He said that his company invariably settles any employment tribunal claim brought against it if it can settle it for less than £2,000. The company does that not on the merits of the case brought, but simply on a cold, hard analysis of the fact that it will cost it at least £2,000 to investigate the facts and to allow the employee time to prepare a case and mount a defence.

It is a pretty serious indictment of the employment tribunal system that for some people, at least, it is essentially a free ticket to small claims, because employers feel that they have to settle them. The Minister seems implicitly to have recognised that problem, in that the Bill tightens up on access to the tribunal and ensures that cases that are brought are proper cases. I suggest to him that this provision does not move in that direction by trying to discourage vexatious and frivolous cases.

Judy Mallaber (Labour, Amber Valley)

Will the hon. Gentleman give way?

Rob Marris (Labour, Wolverhampton South West)

Will the hon. Gentleman give way?

Philip Hammond (Conservative, Runnymede and Weybridge)

I first give way to the hon. Member for Amber Valley.

Judy Mallaber (Labour, Amber Valley)

Does the hon. Gentleman accept that the amendment would only authorise an employment tribunal to have regard to a person's ability to pay, rather than requiring them to take account of it, so cases such as those that he described would be taken account of by the tribunal in making its award of costs? There is an aspect of costs that is broader than simply what happens in the tribunal itself. It is involved in cases where someone in the workplace is intimidated by the idea that when they reach an employment tribunal they could be landed with a very high bill, regardless of whether that would be so. Such a person may not have access to advice telling them that they would not in fact be landed with such costs.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Lady is right in that the amendment proposes that the rules should authorise tribunals to take into account the circumstances of the person against whom the award is made.

In the letter sent to my noble Friend Baroness Miller when the amendment was before the other place, Lord Sainsbury seemed to imply that there was no cause for concern because in the really bad cases the tribunal would still be able to award costs against someone without regard to their financial circumstances. The point that I was trying to make is that the question of an award of costs arises only in the really bad cases—only if the case is vexatious, frivolous or scandalous. In the vast majority of cases, win or lose, the issue of costs will not arise.

Rob Marris (Labour, Wolverhampton South West)

My recollection of the debate in Committee is similar to the hon. Gentleman's, but I seem to remember the Minister citing figures suggesting that, in about one third of cases where costs were awarded, they were awarded against the respondent employer. That employer might be a badly advised small business, or there could have been a personality clash in a small company. Is the champion of small business now saying that we should not have regard for such businesses' ability to pay, and that those businesses might be put out of operation as a result?

Philip Hammond (Conservative, Runnymede and Weybridge)

Although I am happy to be referred to on the record by the hon. Gentleman as the champion of small business, I also like to be thought of as the champion of fairness. We must think very carefully about the person who did not ask to become involved in a process but who must incur costs—either in time or in external costs—in responding. I am grateful to the hon. Gentleman for his intervention because I hope that it will be clear to those listening that I am not making a partisan point. This is not a point made exclusively on behalf of employers.

I can perfectly easily envisage an employer deciding to fight tooth and nail an application which he knows in his heart—and which it is perfectly apparent to everybody else—cannot be defended. It is wholly reasonable that the person making such an application should have the opportunity to recover the costs that they have properly incurred as a result of being put to all the trouble by the vexatious actions of the other party—be it the employer or the employee. In equity, the pecuniousness or otherwise of that other party is not the principal issue.

I am certainly not a blind champion of anybody. I recognise, and have recognised, that there are rotten apples in every barrel, and I would never pretend otherwise.

Tony Lloyd (Labour, Manchester Central)

I completely fail to understand the hon. Gentleman's logic. Had costs been a permanent deterrent and had the possibility of incurring them been known from the beginning, or had costs been a routine way of recovering expenditure by the state and others, it might have been argued that the provision should apply equally to everybody. However, the hon. Gentleman is suggesting rather arbitrarily that those who are super rich—either respondents of claimants—should be able to go to a tribunal knowing full well that they can absorb easily any costs incurred, but that those who are much less well off, because they come from a small firm or they are acting individually, should be penalised disproportionately. I do not see the sense of justice in that. Is not the balance about right?

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Gentleman's intervention is rather long.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman's old Labour credentials often come through impeccably. Such payments are a fact of life in our society—unless he advocates making every penalty and award proportionate to the income of the person forced to pay it. The hon. Gentleman nods in agreement, but we are straying from the amendment, which would not have any impact on the problem that he raised. He is right: with or without the amendment, a rich employer, determined to go head to head with an applicant with an unanswerable case, would be able to do so with impunity, knowing that he could absorb the award of costs. The point made by the hon. Gentleman is therefore not particularly relevant to our discussion of the amendment.

Earlier in our debate, an important general point was made about the inexorable rise in tribunal applications. The Government's underlying intention in introducing the legislation was not to deter people with well-founded claims from making them, but to ensure, first, that claims that do not need to go to a tribunal to be settled, do not do so, and secondly, that the tribunal does not become the subject of a growing number of vexatious and frivolous claims brought by people who believe that they can test the water. Who knows, perhaps they are in the fortunate position of working for someone like the anonymous employer whom I cited earlier, who will settle anyway to avoid hassle and expense. There is no doubt that a bit of that has been going on.

The Minister has accepted the underlying purpose of clause 22 is not to sweep claims under the carpet so that people do not have access to a settlement, but to achieve settlement in the workplace wherever possible. In our early consideration of the Bill, the Minister talked about reducing the number of tribunal applications, but in more recent exchanges, he has talked about arresting the rise in the number of tribunal applications. That is an important distinction—the Government's original, laudable objective in the provision has been abandoned before the Bill has even completed its parliamentary passage. I should be grateful if the Minister could give the House up-to-date figures on employment tribunal applications, together with the Government's revised target.

Are the Government expecting a reduction in the number of employment tribunal applications as a result of the passage of the Bill, or are they, as I believe is the case, projecting a rise in the number of employment tribunal applications? If so, how many applications are involved? I fear that many of my hon. Friends and many people outside the House will regard that as an acknowledgement of failure of the Government's objectives. Can the Minister confirm that if the trend continues to rise inexorably, he will review the evidence, particularly in relation to vexations and frivolous claims, and reconsider the Government's position if it becomes apparent that such claims are not being adequately prevented by the amendment?

The second substantive point arising from this group of amendments is slightly different.

Tony Lloyd (Labour, Manchester Central)

The hon. Gentleman touches on an important point concerning the philosophy of the tribunal. Does he believe that the rise in the number of people applying to tribunals is driven by either vexatious claimants or vexatious respondents? If that is the case, we would need to look into it. However, if the hon. Gentleman believes, as I do, that the rise in the number of tribunal cases may be arrested by more satisfactory procedures, which my hon. Friend the Minister has tried to introduce into the law, and reflects the nature of the modern world of employment, we are faced with a different situation. The hon. Gentleman is speaking about deterring legitimate claims from going to tribunals.

Philip Hammond (Conservative, Runnymede and Weybridge)

I very much hope that the hon. Gentleman is right and that the Bill achieves the original objective set out by the Government—to reduce the number of applications to tribunals by improving the procedures for dealing in the workplace with what might otherwise become employment tribunal applications.

I believe I am right in saying that the Minister has already acknowledged—he will clarify this when he speaks again—that we will not see a reduction, and that the best we can hope for is a diminution in the rate of growth. I do not have the figures. [Interruption.] The Minister is chuckling on the Bench; perhaps he has them now. I am not suggesting to the hon. Member for Manchester, Central (Mr. Lloyd) that the increase that we have witnessed is driven entirely by vexatious or frivolous claims, in the technical sense in which the employment legislation defines those. However, I do think, and I am not afraid to say this, that there has been an element of gold digging.

There is a perception in some quarters that some employers will buckle in the face of modest claims, because of the expense and disruption of defending themselves against claims. As I understand it, the Government recognise that phenomenon and, while wishing to protect the right of the genuinely aggrieved party to have access to the tribunal, do not wish to encourage frivolous or trivial use of the tribunal in the hope of making a quick buck. I should not have thought that the hon. Member for Manchester, Central wanted to encourage that either.

The second substantive point to which the present group of amendments gives rise relates to the ability to recover legal costs and own-preparation time. The Government are right in the original drafting of the Bill to remove any discrimination against parties who prepare and mount their own case, rather than using expensive external legal resources. That will benefit parties on both sides of the industrial equation, and we welcome it.

However, the Government in their wisdom have now decided that people can be awarded costs in respect of only one or the other form of expense—external third-party costs, typically of engaging a lawyer, or the person or firm's own costs in mounting a defence internally. Almost invariably, there will be both forms of cost. Even if an employer faced with a claim immediately engages a law firm to act for him, as many do, he will find that the law firm is unable to act without a great deal of information being collated internally in the firm, a considerable amount of time and energy being spent to produce basic information, and probably somebody from the firm attending the tribunal.

The proposal in the Government amendment is particularly disadvantageous to smaller businesses. In practice, a large firm will be used to receiving and dealing with employment tribunal applications, not because it is a bad firm or because it has particularly litigious employees, but by its nature as a large firm. It will have a procedure in place, and will probably have in-house lawyers who can deal with the matter. If not, it will have a retained external law firm to which it will immediately pass the matter. In either case, the large majority of its costs will fall under one of two headings—own costs or third-party legal costs—and it will therefore be able to cover them under the amendment.

Let us consider a typical small business such as a sole trader. On receiving an application from an employee in respect of an employment tribunal, the employer in such a business will probably seek first to deal with the issue himself. Small businesses are usually reluctant to incur external costs and especially to hire lawyers, because they know that lawyers typically do not come cheap. The employer will probably struggle with the case for some time on his own, but if it becomes apparent that it will be tested in a tribunal, he may well feel that he does not have the presentational and adversarial skills and so on that he requires to appear there in person as the principal representative for the respondent. When it becomes apparent that the matter is serious and will go to a tribunal, he will therefore be likely to engage a lawyer.

I suggest to the Minister that many smaller firms will find that they have costs under both the headings to which I referred, as they will have started by trying to deal with the matter themselves and to keep their legal costs down by doing as much of the work as they can, but will still have had to engage expensive legal support in the latter stages, bearing in mind that nobody knows in preparing a response to a tribunal application whether they will be awarded costs. The statistical evidence suggests that it is more than likely that they will not.

Kevan Jones (Labour, North Durham)

Surely, if the employer thinks that the claim is frivolous and vexatious, the law allows them to ask for a pre-hearing assessment before the chairman of the tribunal. The chairman can determine that the claim is frivolous and vexatious, and direct that, if the case is taken forward, the other party will have to cover the costs if they lose.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman is right; I think that the law currently allows a deposit to be requested at the pre-hearing. I think that the deposit is typically £150, although perhaps I am wrong, in which case the Minister will correct me.

Such remedies may be available, but I am seeking to make a more general point. As I said, I am not indifferent to the point made by the hon. Member for Amber Valley. I have firmly lodged in my mind the example cited in the Standing Committee involving a lawyer sending out a threatening letter suggesting that costs could be as high as £50,000, in an attempt to scare an applicant off. Such behaviour is clearly unacceptable.

If the Minister recognises that there is a problem, he must address the issue of the maximum quantum of costs that can be incurred in mounting a response to an application. It seems perverse and illogical to suggest that it is okay to incur £10,000 of legal costs by going to an expensive legal firm for advice or £10,000 of own costs by using one's internal resources, such as an in-house lawyer, but that an employer who spends £4,000 internally and another £4,000 by taking the case in its latter stages to an external lawyer will be eligible only for reimbursement of a maximum of £4,000. If the Minister wants to address the concerns of the hon. Member for Amber Valley, he would best do so by introducing some means of capping the total cost and not by imposing a grossly unfair and discriminatory prohibition on firms or applicants who incur costs under both headings and may therefore suffer by comparison with someone who has incurred all their costs under one head.

I urge the Minister to think very carefully about his logic for introducing such provision, as it does not seem fair, equitable or appropriate.

Joan Walley (Labour, Stoke-on-Trent North)

I do not wish to detain the House long on this issue. I am relieved that there is an amendment from the other place that will require or at least give discretion to an employment tribunal to have regard to ability to pay. I welcome my hon. Friend the Minister's acceptance of the amendment. These issues are at the core of the way in which we are taking forward employment tribunal procedures, and relate as much to regulations that were introduced some 12 months or so ago that changed the way in which costs were introduced so that any case that was unreasonable, as opposed to vexatious or frivolous, could incur costs. How can we say that something is reasonable or otherwise without the benefit of hindsight? How else can case law be established?

At the heart of this debate are the changes that were introduced a year ago, which increased the upper limit in respect of costs. I do not think that we would be having this precise debate now, with the statements that the shadow Minister has just made to the House, if we had not had those changes.

The changes in the regulations still give me some concern as to whether the Government's proposals will deal with people being deterred from taking cases to employment tribunals, or ensure that more is dealt with within the work force itself. Of course, we want particular concerns to be dealt with in the workplace. We do not want them to have a go to a tribunal, but there is still some failure to tie up the implications of those changes.

Comments have been made about how many cases are going to tribunals. How is the Minister monitoring the cases that are going to tribunals? Have we seen a change in the number of cases going forward since those regulations were introduced last July?

I am relieved that we have this amendment from the Lords. I wrote to the Minister on 26 June 2001 pointing out that there was still no requirement on tribunals to have regard to the ability to pay and drawing attention to the Kovacs case. In his response in a letter dated 16 July, the Minister said that that was correct

"but case law has established that in making a costs order it will usually be desirable to look into the means of the party concerned, and of course tribunal chairmen are well aware of this."

As the Minister has pointed out, we now have the decision of the employment appeals tribunal, which sets out that there is no way in which a chairman of an employment tribunal could have any discretion as to whether costs should or should not be awarded—there is no way in which that could take place. Therefore, I am relieved that, finally, after 12 months of correspondence—and having raised the matter on Second Reading—we have an acknowledgement in the other place that that has to be taken into account.

The Minister said that chairmen of employment tribunals and indeed employment tribunals themselves should take into account ability to pay where it is appropriate to do so. Given that we do not have a requirement—we have only a discretion—I still have some concerns. I wonder whether the Minister could spell out in a little more detail for the record exactly which circumstances he is thinking of in which the chairman could have regard to ability to pay. That is a critical point.

The changes brought in 12 months ago could do far more to deter people from taking claims to employment tribunals because they were afraid. I am not thinking about the businesses, the employers; I am thinking about those who have valid cases, but who may be deterred from taking their cases to tribunals simply because they fear substantial costs may be awarded against them. I should be grateful if the Minister would give further attention to that when he replies.

Tony Lloyd (Labour, Manchester Central)

May I say to my hon. Friend the Minister that I welcome the amendments and the fact that the Government want to see them incorporated into the Bill? I think that it was the hon. Member for Tatton (Mr. Osborne) who talked about deterrence. Let us make it clear that, while most of us would accept the legitimacy of deterrence to prevent frivolous, vexatious or, indeed, scandalous claims—although these are sometimes quite subjective concepts—there is always a concern that deterrence will be applied to legitimate claimants. Not only might such claimants be deterred when they find themselves saddled with costs but they might not even dare to exercise their right of access to the tribunal. While we want to deter those who abuse the system, we certainly do not want to deter those who should have proper recourse to the tribunal. I hope that my hon. Friend the Minister will make it quite clear that that is the Government's approach, and that we are not here to deter legitimate claimants.

George Osborne (Conservative, Tatton)

The Minister said in Committee that it was his objective to reduce by 30,000 or 40,000 the number of cases coming before employment tribunals. Does the hon. Gentleman share that objective? It is not entirely clear from what he is saying that he does.

Tony Lloyd (Labour, Manchester Central)

Let me make it quite clear. If no one ever exercised their right of access to a tribunal because the internal mechanisms worked well, we would all be delighted. Conservative Members should not work themselves into a frenzy saying that the existence of the tribunals is, of itself, a bad thing, or that the use of an existing tribunal is a bad thing. Sometimes a society such as ours needs such provisions—I do not want to use the term "case law", because it would almost give tribunals too much of a legalistic nature, which we want to avoid. We need the tribunals to examine where the balance lies in industrial relations in our society; they perform an important role above and beyond the simple resolution of individual cases. We do not want the idea to go out from the Chamber tonight, or from anywhere else, that we regret either the existence or the operation of the tribunals. They are a necessary part of a modern, efficient society.

We are talking about how we should fine-tune the tribunals' function, and make them work better. In that context, the Minister has genuinely made progress. The opportunity for the tribunals to reflect on the ability of an individual to pay—whether it be the claimant or the respondent—is an important one, and the Minister is right to put it into the Bill and into regulations. It is also right that we should cap the number of avenues under which costs of different kinds can be given, because the whole idea of the granting of costs should not involve fines or penalties. The provisions may be there to deter the vexatious, but they are not there to say, "This person got it right, and the other one, who got it wrong, is therefore subject to this fine."

It is important that the ability to pay—even for the vexatious—is taken into account. We all have constituents who are, quite frankly, obsessive. Of course it is right and proper that we should deter them, and my hon. Friend the Member for North Durham (Mr. Jones) correctly pointed out that the pre-hearing scrutiny normally provides the most efficient way of taking out those cases. However, we do not want to end up with a fundamentally ridiculous situation in which even an obsessive is so burdened by debt that they cannot pay, which would make a mockery of the system.

Judy Mallaber (Labour, Amber Valley)

rose—

Philip Hammond (Conservative, Runnymede and Weybridge)

rose—

Tony Lloyd (Labour, Manchester Central)

If the hon. Gentleman will forgive me, I shall give way to my hon. Friend first.

Judy Mallaber (Labour, Amber Valley)

Does my hon. Friend recall the cases that were brought before us in Committee, which showed that this is not just a question of cases being vexatious and frivolous? We were told about a number of cases that it would have been perfectly reasonable for the applicant to think were well founded, but that were found to be vexatious or frivolous. Those applicants would not necessarily have thought that that would be the outcome when they entered the tribunal. We were told of several cases that illustrated that point.

Tony Lloyd (Labour, Manchester Central)

That is an important point. We are not trying to saddle people with debts; that is certainly not what the tribunal process is intended to be about.

Philip Hammond (Conservative, Runnymede and Weybridge)

I think that the hon. Gentleman just described the award of costs as a fine. Is that how he sees such awards throughout our tribunal and legal systems? I see them simply as compensation paid to injured parties for costs they have incurred.

Tony Lloyd (Labour, Manchester Central)

If the hon. Gentleman had been listening, he would have heard me say that awards should not come to be seen as fines. Of course they can constitute recompense to injured parties.

Let us consider the origin of the tribunal. It was about low-cost justice; it was not about encouraging highly paid lawyers to represent one side or the other. The aim was to retain common sense and a sense of proportion, and I think the Minister has tried to strike that right and proper balance.

I hope, though, that the Minister will reflect on concerns that have been expressed throughout about the deterrent effects. It is in everyone's interests for fewer cases to go to tribunals, but only if that is because disputes are resolved at an earlier stage or, even better, because an industrial relations climate develops in which problems do not arise in the first place. What we do not want is a fall in the number of tribunal cases that merely masks injustice and unfairness. That is why I want the Minister to monitor the situation. We need to be sure that people who really need access to tribunals, in order to resolve genuine problems in the workplace, are not deterred.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Gentleman has succinctly identified what needs to be done, but I can think of no method of distinguishing between the two possible causes of a fall in the number of applications to tribunals. Has the hon. Gentleman any ideas for how the Minister might undertake the monitoring that he has suggested?

Tony Lloyd (Labour, Manchester Central)

There are many ways of doing it. Opposition Members will disagree profoundly with this, but I believe that a growth in trade unionism would provide a much better way of determining whether workers are being treated properly. If the number of applications falls, it will of course be possible to note the number of successful claims and the number of unsuccessful claims. A massive rise in the number of unsuccessful claims, or a proportionate rise against the background of an overall reduction, would tend to suggest that something was going wrong—that people with real claims were not going to tribunals.

Kevan Jones (Labour, North Durham)

Might not one way of reducing the number of applications be to educate small business and other employers to use proper procedures?

Tony Lloyd (Labour, Manchester Central)

Absolutely. We can argue later about whether the code mentioned elsewhere in the Bill will prove effective, but, as my hon. Friend says, it may be possible to resolve many problems long before even mentioning tribunals if employers and, indeed, employees work within the context of properly structured grievance and disciplinary procedures.

The Government have made progress. They have taken an important step, but we need to make it clear that we do not intend to deter legitimate claimants, and we need to monitor the situation to ensure that the spirit of what the Minister wants to achieve is translated into practice throughout the country.

Rob Marris (Labour, Wolverhampton South West)

I begin by declaring that, among my registered interests, I am a non-practising solicitor. I want to ask the Minister about two disjunctions. First, under amendment No. 29, an award could be made either for legal costs or for preparation time in respect of employment tribunals. Can he assure me that that provision will also apply to employment appeal tribunals? Secondly, clause 23 states:

"For section 34 of the Employment Tribunals Act 1996 (costs and expenses) there is substituted"

a new clause 34, subsection (1) of which states:

"Appeal Tribunal procedure rules may include provision for the award of costs or expenses."

Will the Minister clarify that wording, which suggests that such a tribunal could award either costs or expenses?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Member for Runnymede and Weybridge (Mr. Hammond) said that, in principle, the Opposition accept the thrust of the Government's efforts in respect of preparation costs, but he suggested that there is another approach. The basis of the Bill as debated in Committee was that some money could come from preparation costs, and some from actual legal representation. Various arguments have been advanced time and again. The point made by my hon. Friends—that in addition to having costs awarded against them, people could also have to bear the huge expense associated with a company's putting time and effort into defending a case—was raised by the Law Society and the National Association of Citizens Advice Bureaux.

Philip Hammond (Conservative, Runnymede and Weybridge)

Yes, but the Minister has not dealt with it. Under the amendment, a company could still rely entirely on its own resources, and its internal costs could still be the subject of an award.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Yes, but the fear that considerable costs would be imposed on top of legal charges was a separate issue. The central argument is that, in a system that tries to discourage legal representation, it is ludicrous that those who sit at their kitchen table night after night, prepare their own case, represent themselves and win should get no recompense. On that central point, people said to me, "Why don't you introduce one thing or the other?" If the issue is ensuring that those who do not use legal representation are no worse off—we must remember that, in terms of wasted costs, we are talking about 4 per cent. of cases—surely the award should be made in respect of either preparation costs or legal costs.

The hon. Member for Runnymede and Weybridge mentioned frivolous cases, but I should rebuke him mildly. In fact, because those who chair employment tribunals thought that the word "frivolous" was entirely inappropriate to the legal profession, it was removed. It was replaced by the word "misconceived", and in respect of wasted costs, reference is now made to misconceived, vexatious and unreasonable claims.

My hon. Friend the Member for Wolverhampton, South-West (Rob Marris) is absolutely right: last year, a third of recipients were respondents, not applicants; in fact, the year before that the ratio was 50:50. Some 50 per cent. of such costs were awarded to businesses—probably small businesses—which, if they represented themselves, could not claim back the costs incurred.

It is important to get the matter into perspective. We have not sought to widen the basis of costs awards, and nor should we. The existing definition—which refers to misconceived, vexatious and unreasonable claims, and to abusive behaviour during a tribunal—presents no problem and relates to only 4 per cent. of cases.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister has addressed his remarks to the own costs element. He painted a picture of the fear of the own costs that a vast firm might incur internally as a deterrent to the applicant. In the next breath, he talked of an own costs applicant slaving away at his kitchen table night after night. I thought that the Minister's objective was to encourage people not to be legally represented at tribunals. Would not the simple and logical approach have been to limit the award of costs to own costs, not legal costs?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

No, I think that we have got the balance right. We will consult on the regulations and take into account the points that were made about putting a cap on costs, although that will be less necessary if the House accepts the amendments. If the central argument is that those people who are not legally represented cannot claim wasted costs, we shall give them the choice between own costs and legal costs. That has met the requirements of the Law Society and the National Association of Citizens Advice Bureaux. We all duck and dive with our arguments, but I mentioned small businesses because—as my hon. Friend the Member for Wolverhampton, South–West pointed out—they made up a third of the parties that were awarded costs last year, and 50 per cent. the year before.

The hon. Member for Runnymede and Weybridge also asked for some indication of the number of cases. In 2001–02, there were between 115,000 and 120,000 applications. In the year before, there were 130,000. However, I would counsel hon. Members against drawing any conclusions from those figures, because in the year before last many one-off cases were brought, including EU cases in which a whole group was settled at a time. Those included some famous cases that my hon. Friend the Member for Wolverhampton, South-West will remember. It is those special circumstances that have led to that reduction, not my year as the Minister responsible for employment relations.

We believe that the Bill will mean that some 30,000 to 40,000 cases will be settled outside employment tribunals which would have otherwise gone before them. Part of that reduction will be those disputes settled in the workplace, and part will be those settled during the fixed period of conciliation. Part will also be accounted for by those cases that were struck out at the pre-hearing stage, as my hon. Friend the Member for North Durham (Mr. Jones) mentioned. At the moment, vexatious, misconceived or unreasonable cases cannot be struck out at the pre-hearing stage and the tribunal can only require a deposit of £500—an increase from £100. A later amendment will allow cases to be struck out at that stage.

Hon. Members have asked how we may further reduce the number of cases, and we have introduced the ACAS arbitration scheme, which was agreed by both sides of the House. It has not been totally successful so far, with only 14 cases using the scheme, but we can do much more work to advertise its availability.

George Osborne (Conservative, Tatton)

The Minister was careful in the way he put his estimate. He said that he hoped to reduce by some 30,000 to 40,000 the number of cases that would otherwise have gone to an employment tribunal, but he did not say that he hoped for an absolute reduction in the number of cases going to employment tribunals. Given that other provisions in the Bill, such as flexible working rights, may lead to an increase in cases going to employment tribunals, can he clarify whether he hopes to see an absolute reduction in the number of cases going to employment tribunals, and by how much?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

As I said on Report, people are more aware of their rights now, which is healthy. They have more rights to be aware of.

Mark Prisk (Conservative, Hertford and Stortford)

Absolutely.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Indeed, but it is not absolute. Given that we are committed to tackling discrimination on the grounds of age, disability, religion and sexual orientation, it would be crazy for me to predict an absolute fall in employment tribunal cases. I picked my words very carefully. Of the disputes that might go to employment tribunals, about 30,000 to 40,000 can be settled outside, and I think that that is a worthy ambition.

My hon. Friend the Member for Stoke-on-Trent, North (Ms Walley) expressed her concerns eloquently. I recognise that she has long been concerned about the £10,000 costs award. Of course, awards could go as high as £10,000 before, but it needed a separate court order and could not be done at the employment tribunal.

My hon. Friend asked how we will gauge or monitor the situation in relation to the introduction of the £10,000 award last July. That was last July—a year ago today—so we have 12 months' worth of information. We are expecting to begin a study of the employment tribunal cost regime in the next year, and we will look very closely at the result. Some evidence has already emerged at the employment tribunal system taskforce, but we will certainly look at it again.

My hon. Friend also spoke about ability to pay, which is the other important issue in this group of amendments. We made it a discretion rather than a requirement in order to restore the status quo. It was always a discretion, not a requirement, until the time of the Court of Appeal case. We did not make it a requirement because, as I said earlier, there could be circumstances in which someone of limited means knew that they had absolute indemnity to raise these cases. We believe that the discretion should be placed with the tribunal. The hon. Member for Runnymede and Weybridge asked whether that should be a principal consideration. We are not saying that, but the employment tribunal should have the ability—the discretion—to make a full award, no award or a reduced award. We are simply returning to the previous situation.

Joan Walley (Labour, Stoke-on-Trent North)

In view of what my hon. Friend has just said, does he anticipate issuing guidance to employment tribunal chairmen on how the discretion is to be applied, following the decision of the Court of Appeal?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

We will certainly issue guidance and it will be part of the regulations. However, the judiciary and the employment tribunal chairs will be very familiar with the regime, as it existed until just a few months ago, following the Court of Appeal decision. I do not think that there will be any problems there.

Philip Hammond (Conservative, Runnymede and Weybridge)

I sense that the Minister is coming towards the end of his remarks. Have the Government any evidence to suggest that the total sum of costs is higher in cases where both internal and external resources have been brought to bear, compared with those where the matter has been dealt with entirely by an external law firm or in-house? If not, I do not believe that he has made the case for refusing to recognise a mixed base of costs.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

No, I do not have that evidence, but we know that the average award over the past year has been £300. There is a big gap between £300 and £10,000. That suggests three things: there are not many of these cases; tribunals take into account ability to pay; and the fact that the award is only £300 but could go as high as £10,000 is part of the fear factor about which we hear time and again from people who deal with these cases day in, day out. The hon. Gentleman made a valid point and his argument is logical. We considered the establishment of a mixed system but were persuaded to move away from it—hence the amendment.

My hon. Friend the Member for Manchester, Central (Mr. Lloyd) pointed out that we were not dissuading people from going to employment tribunals. I said that earlier—as I have on other occasions—and I am happy to repeat it: we are not about denying people justice. To be fair to the Opposition—certainly those Members who sat on the Committee—I do not think that was their objective either.

My hon. Friend the Member for Wolverhampton, South-West asked, first, whether the provision would apply to the employment appeal tribunal. There is no provision for preparation time in the tribunal, although there is provision for litigants in person, so we need to apply the provision either for preparation or legal costs.

My hon. Friend's second point—

Rob Marris (Labour, Wolverhampton South West)

rose—

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

If my hon. Friend wants to intervene, perhaps he could remind me of his second question.

Rob Marris (Labour, Wolverhampton South West)

My point referred to page 33 of the Bill and the revised section 34 of the Employment Tribunals Act 1996, which states:

"Appeal Tribunal procedure rules may include provision for the award of costs or expenses."

Expenses are different from preparation time—they relate to the cost of a witness attending a tribunal hearing or, in this case, an appeal tribunal. Given that on page 32 there is a reference to costs and expenses, I wanted to ensure that no problem would arise. It might help those in the judicial system who have to interpret the measure if the Minister could give some clarification.

Philip Hammond (Conservative, Runnymede and Weybridge)

I may be mistaken but my recollection of our discussions in Committee is that the word "expenses" relates to Scotland. Is that correct? The hon. Gentleman is a lawyer, so he may be able to assist us.

Rob Marris (Labour, Wolverhampton South West)

A Scottish lawyer.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Member for Runnymede and Weybridge helps me enormously. As I said, there is no preparation time in the EAT and the Scottish term for costs is indeed expenses.

On that note, I hope that the House will support the motion.

Lords amendment agreed to.

Lords amendments Nos. 27 to 30 agreed to.

Clause 24 — Conciliation

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move, That this House agrees with the Lords in the said amendment.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to consider Lords amendments Nos. 32, 33, 78, 80 and 91.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Amendment No. 31 deletes subsection (3)(a). It is a minor amendment that relates to the processing of tribunal claims between the Employment Tribunals Service and ACAS. Our intention was to provide through regulation a circumstance where uncontested applications would not be passed to ACAS, so that its resources could be better focused on applications where both parties acknowledged the dispute.

As a result of debates in the other place, however, it became clear that valuable conciliation time could be lost if, rather than sending an application to ACAS immediately, we waited to find out whether the respondent would contest it. The consequence would be a delay before ACAS could begin work and thus a delay to the processing of claims, which is not in the best interests of tribunal users. We believe that the overall user interest should take priority over a small saving of ACAS's time and that, on balance, subsection (3)(a) is undesirable. Accordingly, we drafted amendment No. 31 to delete it.

The amendment will have the effect that an originating application to an employment tribunal that falls within the duty of ACAS to conciliate will continue to be sent to ACAS immediately. The same applies to notices of appearance.

Lords amendments Nos. 32 and 33 are technical and consequential on Lords amendment No. 31. Lords amendments Nos. 79, 80 and 91 are also technical and consequential on the removal of section 19(c) of the Employment Tribunals Act 1996, which is affected by clause 24(3)(b). I commend these amendments to the House.

Philip Hammond (Conservative, Runnymede and Weybridge)

The essential point is that Lords amendment No. 31 will remove the discretion to create exceptions by regulation. As the Minister will know, we are always delighted when the scope for discretion by regulation is reduced—something for which we always argue in Committee. It is interesting that the Government appear to have been more readily persuaded of the merits of removing such discretion in the other place. I wonder whether that has something do to with the simple arithmetic that prevails there.

I am pleased to say that we are delighted with the Lords amendment, which will improve the Bill. I wish that the Minister were able to tell us that many similar amendments would remove such discretion in regulations, but sadly this is the only such change.

Lords amendment agreed to.

Lords amendments Nos. 32 and 33 agreed to.

Clause 28 — Pre-hearing reviews

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move, That this House agrees with the Lords in the said amendment.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to consider Lords amendments Nos. 35 and 36.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

These amendments were made in response to the concern that the power to strike out at a pre-hearing review should be included in the primary legislation, rather than in employment tribunal procedure regulations. In particular, the concern was that striking out at the pre-hearing review stage might be permissible in circumstances that go beyond those in which striking out is possible at other stages in the proceedings.

We had always intended that strike-out at the pre-hearing review would be possible on very limited grounds, not going beyond those permitted elsewhere in the tribunal rules. Those grounds are failure to comply with an order or direction imposed by the tribunal, or when the originating application or notice of appearance or anything in it is scandalous, misconceived or vexatious. Hence we were content to spell that out in the Bill, which is what these amendments do, so I ask the House to support them.

Lords amendment No. 34 agreed to.

Lords amendments Nos. 35 and 36 agreed to.

Clause 31 — Non-completion of statutory procedure: adjustment of awards

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move, That this House agrees with the Lords in the said amendment.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to consider Lords amendments Nos. 46 to 55.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Amendments Nos. 46 to 55 simplify the compensation regime, as originally set out in clause 38, for failure to comply, in certain circumstances, with the requirement to provide employees with a written statement of employment particulars. They necessitate a consequential amendment to clause 31, which is why they are being discussed now.

Clause 38 provides that when an employee brings a successful claim to a tribunal under one of the jurisdictions set out in schedule 5 and the tribunal finds that his employer failed to comply with the written statement requirements, the employer will be liable to a financial penalty for that failure. That policy is unchanged. As the clause was originally drafted, however, the penalty would normally take the form of a 5 to 25 per cent. uplift to the employee's award. If compensation was not the remedy chosen by the tribunal, or was not available for a particular jurisdiction, the employee would instead receive one or two weeks' pay, depending on whether the statement was incomplete, inaccurate or had not been supplied at all.

One or two weeks' pay also served as the floor for any percentage uplift. That was never an easy system to explain, and it was criticised in another place for its complexity.We are confident that the underlying policy is right—the policy of encouraging employers to recognise the importance of the written statement in the employment relationship. Indeed, it was welcomed by the majority of respondents to consultation. On reflection, however, we agree that the penalty regime as originally drafted was needlessly complex.

Taken together, these amendments therefore replace the percentage uplift system with a simple fixed-rate penalty of two or four weeks' pay. As before, the penalty will be awarded if the written statement is incomplete, inaccurate or absent, or if notification of any change to the particulars had not been given. Whether two or four weeks' pay is awarded, however, will not be linked to the particular failure. Whether to award the higher or lower penalty will be at the tribunal's discretion. If the tribunal thought that it was right in particular circumstances, it could award a higher penalty for an inaccurate statement than for failure to issue one at all. We believe that tribunals will find the fixed-rate penalty regime considerably easier to administer than the percentage system. Moreover, we believe that it will fulfil our policy aims just as effectively.

Philip Hammond (Conservative, Runnymede and Weybridge)

As the Minister said, the substantive amendments are to clause 38. I recognise that the Government were criticised in the other place for the complexity of the penalty regime that would apply when an employer failed to deliver particulars of employment as required by the law. The original scheme involved a percentage uplift of the award that was made by the tribunal. The cost that the employer would suffer for the failure to deliver particulars would be determined by reference to the award that was made against him. That seems to have a lot of attraction to it. I accept that it is a little more complex but, as I understand it, the intention is not to fine the employer for having failed to deliver particulars of employment. Were that the purpose, the sensible way to proceed would be to introduce a mechanism into the relevant primary legislation to impose a fine on an employer for failure to deliver particulars—that fine would go to the court and not to the employee in question.

The purpose, however, is to ensure that when an employee has a legitimate grievance, and that grievance is recognised by the tribunal in making an award, the aggravation of that grievance by the failure to deliver a proper statement of particulars is recognised in a percentage uplift in the award. The degree to which the monetary sum by which the employer's failure to deliver the statement of particulars translates into an award to the employee would therefore be related to the severity of the underlying legitimate grievance, if the tribunal finds that there has been a legitimate grievance and it makes an award to recognise it. One would at least hope that the size of the award will reflect the seriousness of the grievance. Moving away from that arrangement, the Government are introducing a fixed penalty for failure to deliver a notice of particulars of employment in the proper form.

I have no problem with the Minister's view that employers should deliver the proper particulars of employment. We discussed that in Committee, and the view across the Committee was that, if clearly set out statements of particulars are delivered, there is scope for avoiding significant numbers of disputes by making sure that everybody is very clear about the terms on which they are employed. I am not sure, however, that a fixed fine going into the pocket of the employee—let us say that the employee earns £200 a week, and the fixed penalty is therefore £200 or £400—is particularly appropriate if the substantive grievance is deemed to be worth only £100. It would seem odd if the employee were awarded £100 in respect of the substantive grievance, but had that uplifted by perhaps £200—a week's pay—because the employer has not delivered the statement. Has the Minister thought through how that will work, and the different relationship between the basic award and the amount of uplift that the amendment introduces?

Another point needs to be made. Under the Bill that was originally passed by the House, the appropriate amount was one or two weeks' pay. The Minister, in his remarks a few moments ago, glibly doubled that to two or four weeks' pay. That is a substantial movement of the goalposts. What has caused the Minister to decide that two or four weeks' pay is appropriate now, given that when the Bill left the House on Third Reading some four or five months ago, one or two weeks' pay was the appropriate amount?

Will the Minister also comment further on the abandonment of the concept—which was clearly enshrined in the Bill and considered in great detail in Committee—of two levels of wrongdoing associated with particulars of employment? As he said earlier, the first level is a gross failure to deliver a statement of particulars, and the second, lesser mischief, is delivery of a statement that is inaccurate or that fails to comply with the requirements of the legislation. Suddenly, that is to be swept away, and the two levels—the higher levels of two or four weeks' pay—are to be awarded entirely at the discretion of the tribunal.

A significant change of position seems to have taken place: two or four weeks' pay is now the penalty, instead of one or two weeks' pay, and the two-tier approach has been removed in favour of a single-tier approach, with the tribunal having discretion beyond that. It would be helpful if the Minister could explain further the thinking behind those two changes.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I shall try to do so. The important point to remember is that, as the hon. Gentleman said, concerns have been expressed about complexity. He referred to the original proposal for a penalty of one or two weeks' pay. First, that served as the floor for any percentage uplift—it was the minimum. Secondly, as I said in my opening comments, if compensation was not the remedy chosen by the tribunal, or was not available for a particular jurisdiction, the employee would instead receive one or two weeks' pay, depending on whether the statement was incomplete, inaccurate or had not been supplied at all. On top of that, there was a percentage uplift of between 5 and 25 per cent.

The hon. Gentleman suggests that we are punishing employers too much by turning to a simple compensation formula of two or four weeks' pay rather than the old formula, which had a fixed element and a percentage award on top. I do not think that we are doing that. Let us not forget that the maximum payment is £250 a week and is based on the statutory payments written into the redundancy and other legislation. A tribunal will have the discretion to decide to go to the top or bottom end of the range of compensation, and the maximum compensation will be £1,000. Last year, the average award for unfair dismissal was £2,700.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister says that the average compensation for unfair dismissal was £2,700, but he suggested earlier that the average award at a tribunal was somewhat lower than that. We therefore need to consider the uplift in the context of the average award made at tribunals and not just for one particular class of action.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The average cost award was £300, but I am now referring to the average compensation for unfair dismissal. That is not the same. I am referring not to vexatious or even frivolous litigation, but to a clear-cut case found against an employer in which it was discovered that no written statement of particulars was issued. In that context, the average award of £2,700 for unfair dismissal is perhaps more relevant than the average cost award of £300.

Philip Hammond (Conservative, Runnymede and Weybridge)

The Minister is missing my point, but I may be missing something too. Let my try to clarify my question. Claims other than those for unfair dismissal go to tribunals and I was hoping that the Minister would give the House the average award—not the costs and not just the average award made at cases of unfair dismissal—that tribunals made in the last year for which figures are available.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

That is a fair point. I do not have the figures for average awards across the board. However, I know that the majority of cases—about 51 per cent.—are for unfair dismissal. In a sense, however, this issue is irrelevant to the argument.

The argument is whether the system was needlessly complex when it left the House. We were convinced by the debates in the House of Lords that it was and that we could simplify the system. We do not believe that we have taken away a tribunal's discretion to decide, and the provision is not linked as closely as it was to failings in the statement of employment terms and conditions. We have given more discretion to the employment tribunals but in a different way, with the matter being based on between two and four weeks' pay. I urge the House to agree to this sensible amendment.

Lords amendment agreed to.

Lords amendments Nos. 38 to 55 agreed to.

Clause 39 — Compromise agreements

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move, That this House agrees with the Lords in the said amendment.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this we may discuss Lords amendments Nos. 88 to 90 and 92 to 95.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The lead amendment will delete clause 39, which is on the expansion of the scope of compromise agreements. Grouped with it are a number of consequential amendments that undo various repeals and revocations that we would have had to make through schedule 8 had the clause remained in the Bill.

Clause 39 was debated in great detail in Committee in the other place in March, and some serious concerns were raised about potentially damaging effects. The Government promised to consider those arguments, which we duly did. On 30 April, in answer to a question from Lord McCarthy, my noble Friend Lord Sainsbury announced that the Government had decided to delete the clause. That was done on Report in the House of Lords. We explained in that debate that we did not necessarily agree with all the legal arguments advanced by Lord Wedderburn about the meaning of the case law, and especially with his interpretation of the recent BCCI v. Ali case in regard to the scope of compromise agreements.

In a sense, it is a question of risk assessment. In our view, Lord Wedderburn rather overstated the risk that widening the compromise agreements might enable employers to draw up general waivers preventing their employees from ever enforcing their employment rights. We continue to think that that would have been invalid and illegal even if clause 39 had remained. However, we acknowledge the risk, and any risk of such an undesirable outcome is unacceptable. It is undeniable that recent case law has created uncertainty.

Even more important, we recognise the risk that, even though such an agreement would in our view be invalid, a small minority of employers might none the less attempt to persuade their employees to sign one. If that happened, the fact that its legal validity was highly questionable would not alter the fact that, having signed the agreement, an employee would be most unlikely ever to go to a tribunal because he would believe that he no longer had the right to do so.

As we have now made clear on several occasions, the Government are adamant that no employee should be deterred in that way. That was not what clause 39 was about. Its aim was simply to address the concerns of a number of employment lawyers that the scope of compromise agreements was unnecessarily restrictive and that it should be widened to match the scope of settlements conciliated at ACAS. That is a reasonable enough aim, and one with which we agree—but not at the risk of jeopardising employees' rights.

We considered amending the clause in a way that addressed all the concerns while retaining the original policy objective. In our judgment, there was no legally watertight way of doing that without also having to tinker with the scope of ACAS-conciliated settlements—the so-called COT 3 agreements. COT 3s have worked very well for several years and we had no wish to change their legal scope. We therefore concluded that we should delete the clause completely.

I hope that the House will agree to Lords amendment No. 56 and to the others grouped with it.

Philip Hammond (Conservative, Runnymede and Weybridge)

I have no quarrel with the substance of what is being done, but it is worth the House taking a moment to consider how near we came to what might have been a legislative disaster. Clause 39 was not debated in Standing Committee in the Commons, because of the operation of a timetable. That meant that the Bill went to the Lords without the clause having been discussed in the minute detail that it was in the other place. By the Minister's own admission, Government legislation went through the House of Commons essentially on the nod. Fortunately, the intervention of Lord Wedderburn in the other place drew to the Government's attention what the Minister acknowledges are possible dangers with the clause.

I have nothing to say about the substance of the issue. I am prepared to defer to Lord Wedderburn's analysis and to assume that the Government, having had the problem drawn to their attention, have considered the matter carefully and decided, on the balance of potential harm, that it is better to delete the clause. However, I ask the House to consider what would have happened had the regime of rigorous timetabling that now dominates and controls all proceedings in this place already been extended to the other place. The House of Lords frequently annoys the Government's business managers by voting when they would like it not to vote and, occasionally, by winning Divisions that they did not sanction it to win. Sadly, except on Fridays, this place seldom does that.

I hope that, in announcing the Government's decision to remove clause 39, the Minister acknowledges the vital role that the other place often, sadly, has to perform on its own because we do not have the opportunity to do our job properly under the timetabling regime. Having recognised that vital role, I hope that the Minister will at least place on the record his determination never to support any attempt to curtail debate in the other place.

Tony Lloyd (Labour, Manchester Central)

I understand the hon. Gentleman's point, but he might want to reflect on a couple of things, one of which is the role of Opposition and Labour Back Benchers in ensuring that time allocated in a timetable motion is used to concentrate on the most important aspects of a Bill. If there is a failure, it is a collective one for which the Opposition themselves have to take some responsibility. One way to avoid the problem is to consider seriously pre-scrutiny of legislation. I know that discussion of that would take us wide of the amendments and I do not want to detain the House on such matters, but the hon. Gentlemen should consider whether pre-scrutiny would have helped the House enormously on clause 39.

Philip Hammond (Conservative, Runnymede and Weybridge)

I do not accept the premise of the hon. Gentleman's first point. By and large, the Committee managed its time well. Very few clauses were not discussed as a result of the guillotine. The fault and responsibility must lie with those who needlessly impose a guillotine on a Bill's consideration in Committee.

I am interested in the hon. Gentleman's comments on pre-legislative scrutiny. I intend to watch with great interest the Government's response to the communications Bill, which is undergoing pre-legislative scrutiny. Their response to the previous Bill that went through pre-legislative scrutiny was not to change it, notwithstanding the Committee's hard work. I hope that the Government will respond constructively to the recommendations this time. However, I am surprised that I have managed to say so much on that subject, Mr. Deputy Speaker, and I shall not try your patience further.

I look forward to what the Minister has to say about what was a narrow escape. I hope that he will give credit where it is due to our noble Friends collectively—Lord Wedderburn of course sits on the Labour Benches—for rescuing the Government from what could have been a serious embarrassment.

Mark Prisk (Conservative, Hertford and Stortford)

I share my hon. Friend's surprise at the pattern of events. In all the consultation and during the Bill's proceedings in this House, clause 39 did not divide opinion, although unfortunately we did not have much time to discuss it. Its sudden last-minute removal suggests either a fundamental flaw that was overlooked or that some undue pressure, to which I hope the Minister did not succumb, was brought to bear.

I have a couple of points to raise. The Government's original case for clause 39 was that it would create consistency with ACAS's conciliation process. Indeed, the Government's explanatory note states:

"The Government's objective in making this change is to ensure that compromise agreements are as effective and as wide in extent as ACAS conciliated settlements."

There was a clear intent to bring the two together. The clause's deletion suggests that one part of the Bill is going in a different direction from the rest of it. I hope that the Minister will clarify that.

My second point relates to the benefit that many business representatives thought would arise. The clause provided closure because it meant that there would be a complete settlement. For example, had a severance package been settled for a redundancy, the clause would have allowed it to hold and it could not have been challenged subsequently. It appears that, out of the blue, unexpected case law has railroaded the clause to one side. Why has the Minister decided not to amend the clause? Is it because it is unamendable, or at least unamendable in the time remaining? Do the Government intend to reintroduce the substance of the clause at a later stage? It would help us all to hear answers to those questions.

Tony Lloyd (Labour, Manchester Central)

I congratulate the Government on listening to our noble Friend Lord Wedderburn. Clearly there was sufficient uncertainty, as hon. Members on both sides of the House accept, and it would have been imprudent to proceed with the clause. My hon. Friend was right to remove it. Sometimes it is better to be kind to a Minister, and we should recognise that he reached the right conclusion as a result of intense debate in the House of Lords. We will improve the Bill by accepting the amendment, and he deserves credit for his approach.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Member for Runnymede and Weybridge (Mr. Hammond) has had a bee in his bonnet about the timetable from day one. The timetable is not a matter for me, but if we had had all the time that he wanted—we did manage to fit in a few extra Committee sittings—I doubt whether hon. Members would have focused on clause 39 to the extent that he suggests.

Philip Hammond (Conservative, Runnymede and Weybridge)

As the Minister mentions the extra sittings, the House should know that the Government introduced a major new clause. Two eminently well qualified and experienced employment lawyers—one Liberal Member and one Labour Member—served on the Committee. I do not share the Minister's doubts about whether one of them would have picked up the problem with clause 39.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I am trying hard to pay a compliment to the hon. Gentleman. All Committee members, including the hon. Member for North Norfolk (Norman Lamb), did their job properly. Scrutiny has been mentioned. I think that clause 39 was the only provision on which there was unanimous agreement in the consultation. We agreed that it was a small, sensible tidying-up measure. It allowed compromise agreements, which happen rarely and require the endorsement of, for example, a trade union official or solicitor, to bring a dispute to a conclusion. Such decisions would not go through conciliation, ACAS arbitration or an employment tribunal.

Lawyers explained that it was crazy that such decisions did not have the same scope as ACAS-conciliated settlements. It is a minor point. Opposition Members may not have debated that clause, but they would have read it. The hon. Member for North Norfolk and my hon. Friend the Member for Wolverhampton, South-West (Rob Marris) were keen on reading every esoteric part of every clause, for which I give them due credit, and I doubt whether they turned a hair when they read clause 39.

We should pay tribute to Lords Wedderburn and McCarthy. Hon. Members may remember that the matter was portrayed, not by them but by a journalist, as part of a covert agenda by the Government to get employees to sign away their right to go back to an employment tribunal in any future case. When the press reacts like that to a clause whose ramifications seem to us so minimal, we need to consider carefully whether to withdraw it on the basis that it is more trouble than it is worth or to amend it. It is not a central element of the Bill, and no party ever suggested that it was.

Norman Lamb (Liberal Democrat, North Norfolk)

I join the Minister in paying tribute to Lord Wedderburn for identifying the disaster that could have occurred if the provision had been accepted. Clearly, it could have led to many employees losing basic rights under pressure from their employers, so it is right that it has been deleted. However, the Minister was wrong to say that compromise agreements are rarely used. In fact, they are frequently used, and were being used every week in our office to conclude agreements. These days, they are a common way of settling a case.

As the Minister rightly said, the sensible purpose behind the clause was to bring compromise agreements into line with ACAS agreements. Does he intend to return to the issue to address the concerns that led to the clause being included in the first place, or will he simply leave the law as it stands?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Member for Hertford and Stortford (Mr. Prisk) asked whether we considered alternative amendments, and we did. It was too great a risk to leave the Bill as it was, and the amendments would have resulted in a cure that was worse than the disease. If we amended the Bill to deal with ACAS-conciliated settlements and left the so-called COT 3 agreements as they were, there would have been a feeling that the latter did not provide the same protection, so we would have had to amend them. Given that the provision is not central to the aims of hon. Members on either side of the House, we ask the House to support the amendment to delete clause 39 in its entirety.

We are consulting ACAS about what we can do to redress the situation. I accept what the hon. Member for North Norfolk said about compromise agreements being more frequent than I had thought, although that is not a big deal. They will remain as they are, and we will encourage their use. All that is missing is this minor but sensible tidying up to give them exactly the same status as ACAS-conciliated settlements.

We should not talk about close shaves but commend the Houses of Parliament for having done their job of scrutiny. The Law Lords have a particular locus in dealing with such issues, and the points made by Lords Wedderburn and McCarthy related to a recent case, BCCI v. Ali. We should not suggest that the fact that the clause passed through the Committee was in any way indicative of a lack of scrutiny in this House.

Philip Hammond (Conservative, Runnymede and Weybridge)

The hon. Member for North Norfolk (Norman Lamb) asked the Minister whether the Government will return to compromise agreements. It became apparent, as the Minister acknowledged, that the Minister may have been misinformed about the extent to which they are used. It is slightly alarming that the Government are legislating without being aware of the basic facts. Can the hon. Gentleman's Department collect data about the number of compromise agreements being reached, because it is difficult to see how, without it, the Government can make an informed decision about what needs to be done?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Hon. Members should not take that error as any reflection on my Department; it was my error. I did not read my brief correctly and mixed up one aspect of employment law with another. I am sure that we do know the number of compromise agreements, and I shall write to the hon. Gentleman and let him know what it is.

Lords amendment agreed to.

New clause

Power to confer rights on individuals: amendment

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move, That this House agrees with the Lords in the said amendment.

This is a technical amendment that does not in any way alter the scope of the power in section 23 of the Employment Relations Act 1999. The power enables the Secretary of State to confer employment rights on individuals who do not currently have them. The amendment's effect is that we would need to confer rights on individuals by an order that amended existing legislation and not by an order that just spelt out the rights to be extended. It would not alter the rights that we could confer, the individuals on whom we could confer them or the way in which any rights conferred would work in practice.

We listened to the opinions of the noble Lords in debating this issue. They argued strongly that the words "or otherwise" were not appropriate and gave the Secretary of State additional powers to extend rights other than by a statutory instrument. On balance, we considered that since the words "or otherwise" had been understood in that way, we should not retain the current wording simply on the basis that it gave us some flexibility. The advice of Lords Ackner and Brightman cannot lightly be set aside.

The amendment may not please the draftsman should we decide to use the power under section 23, but I hope that it will alleviate concerns raised in the other place that we were intending to circumvent Parliament by use of the words "or otherwise". Removing those words will not limit the scope for conferring statutory employment rights on individuals to whom the rights do not currently apply. As Members will be aware, a review of employment status in relation to statutory employment rights is under way, and we intend to publish a discussion document on employment status this month.

Philip Hammond (Conservative, Runnymede and Weybridge)

The story behind the amendment is extraordinary. I take issue with the Minister when he says in one breath that this is a technical amendment and in the next that the opinions of Lords Ackner and Brightman cannot be lightly dismissed. Lord Ackner opened his speech on Third Reading in the other place by saying:

"This is not a small and technical matter, as the Minister said".—[Official Report, House of Lords, 27 June 2002; Vol. 636, c. 1530.]

Ministers in the other place sought to present this as a technical matter, and the Minister has repeated that this afternoon, but that is not so.

The Minister, like his noble but sometimes discourteous Friend Lord Sainsbury, also managed to avoid giving any credit to my noble Friend Baroness Miller of Hendon, without whose unstinting determination this amendment would not have been brought to the attention of Lords Ackner and Brightman and, ultimately, accepted by the Government. Indeed, Baroness Miller had to table the amendment three times and put up with a good deal of rather ungentlemanly ridicule from the Government Dispatch Box before the wisdom of what she was advocating came to be recognised. She apologised on Third Reading when she introduced this amendment for the third time, explaining that she was

"compelled to do so by the Government's obdurate refusal"—[Official Report, House of Lords, 27 June 2002; Vol. 636, c. 1528.]

to accept the deletion of the two offending words from the Employment Relations Act 1989.

When I read the Lords debate, I was disappointed and, frankly, surprised to note the patronising tone with which Ministers in that place, who seem to be far less courteous than their counterparts in this place, dealt with my noble Friend. Many of my hon. Friends will know Baroness Miller well, and would know better than to step in her way when she is determined to achieve something. Terriers with bones have nothing on my noble Friend.

Apparently, Lord Sainsbury was not aware of my noble Friend's reputation and determination. The first time that she tabled the amendment, he sought to dismiss it by making repeated spurious references to someone called Doreen, then essentially telling her to go back to her kitchen sink and stop meddling in matters that did not concern her. The second time that she tabled it, the noble Baroness was told that the matter was trivial and technical, and that she had failed to understand it. It is remarkable that she was prepared to persist as she did, ultimately engaging the eminent and learned Lords Ackner and Brightman in considering the matter more carefully. In their speeches on Third Reading in the other place, they made it clear that the issue needed to be dealt with.

The original provision in section 23 of the Employment Relations Act 1999 says that the Secretary of State has the power to confer certain rights on individuals. Subsection (5) states:

"An order under this section may make provision in such way as the Secretary of State thinks fit, whether by amending Acts or instruments or otherwise."

Several months ago, my noble Friend brought that section of the 1999 Act to the shadow Department of Trade and Industry meeting and asked all of us around the table if any of us had any idea what "or otherwise" meant. I have to confess that we were unable to help her. She went the Library and asked them to search for any elucidation as what the phrase "or otherwise" means, but they told her that they were unable to help. On 4 December, the Minister, Lord Sainsbury, told the noble Baroness that the purpose of the words "or otherwise" was:

"'intended to ensure that an order under section 23 could also apply to rights to individuals by means of a free-standing provision rather than an amendment.'"

So my noble Friend, tenacious as ever, went back to the Library and asked them to look up a legislative device known as a free-standing instrument, but they could not find one, and we came to the conclusion that the law knows of no such instrument.

On Third Reading, my noble Friend tabled the amendment yet again, albeit to a different part of the Bill. Originally, with typical humility, she tabled it as a minor and consequential amendment, but having listened to Lords Ackner and Brightman she realised that it should not relate to the clause entitled "Minor and Consequential Amendments" because it was not a minor change, but a very significant one. She therefore moved the amendment to the appropriate part of the Bill. When the Minister responded to the debate, he appeared at first to be sticking to his guns. He said:

"However, it is still my view that it does no such thing."

That is, that the provision did not have the implications that the noble Baroness was suggesting. But the Minister was visibly affected by the interventions of Lords Ackner and Brightman, and I understand that a scurry of paper support was forthcoming during the time when he was on his feet. Having spent nearly two columns of Lords Hansard explaining why my noble Friend was wrong, at the end he capitulated in one paragraph by saying:

"In view of the very strong pleas by both noble and learned Lords"—

no reference to my noble Friend—

"that they do not believe the Government's measure is appropriate, on balance we are prepared to accept the amendment."—[Official Report, House of Lords, 27 June 2002; Vol. 636, c. 1529–34.]

That was after taking up some 15 minutes of the House's time explaining why my noble Friend was still wrong.

Rob Marris (Labour, Wolverhampton South West)

I am slightly confused, and perhaps the hon. Gentleman could elucidate something for me. He referred to a free-standing provision and said that when the noble Lady looked for it in the Library she found that there was no such instrument. Did the Law Lords suggest that a constitutional innovation had been made in the Bill, or did they say something else that persuaded the learned Lady and the hon. Gentleman that the provision needed to be changed?

Philip Hammond (Conservative, Runnymede and Weybridge)

My noble Friend is not learned in the technical sense. It was Lord Sainsbury who said:

"'The use of 'or otherwise' was intended to ensure that an order under section 23 could also apply to rights to individuals by means of a free-standing provision rather than by an amendment.'"—[Official Report, House of Lords, 27 June 2002; Vol. 636, c. 1529.]

The Minister himself introduced the concept of the free-standing provision, which, as it turned out, did not take the debate much further.

Mark Prisk (Conservative, Hertford and Stortford)

Is my hon. Friend aware that in addition to the apparent confusion there seems to be a direct contradiction in what Lord Sainsbury said? In December he wrote to the noble Baroness saying that the words do not extend the powers of the Secretary of State, yet he told the Grand Committee on 22 April:

"'The noble Baroness's amendment would simply take away the current flexibility for the Secretary of State to extend rights in a way that is best from a drafting point of view.'"—[Official Report, House of Lords, 18 June 2002; Vol. 636, c. 701.]

Does my hon. Friend share my concern that such contradictions undermine confidence in the way in which the Bill is being presented?

Philip Hammond (Conservative, Runnymede and Weybridge)

I entirely agree with my hon. Friend. There were several contradictions in what the Minister in the other place said in the course of debates on the amendment. We may be talking about an unusual case in the other place and an unusual Standing Committee in this place, but in reading the debates I was struck by the fact that the courtesy that was extended by and to hon. Members on both sides during the Committee looks rather good in comparison to what went on in the Lords, where one typically expects to see higher standards of courtesy than those that we extend to each other in this place.

The substantive point that concerns me is that on three occasions the Minister sought to rubbish my noble Friend's amendment, both in terms of its substance and his argument against it and of the rather patronising and disparaging remarks that he made during his speeches. On three occasions he said that the amendment was misguided, unnecessary and did not do what the noble Baroness thought it did, yet at the end of the third such dismissal of her amendment, he capitulated, saying to the House:

"In view of the very strong pleas by both noble and learned Lords . . . on balance we are prepared to accept the amendment."—[Official Report, House of Lords, 27 June 2002; Vol. 636, c. 1534.]

That is not the way to conduct legislation. Either the noble Lord believes that the amendment is unnecessary, argues his case and stands his ground, or he accepts, with some humility, that he was wrong on the two previous occasions, that he owes my noble Friend an apology, and that the Government were accepting the amendment on the basis of solid argument, not as an afterthought because it was nearly dinner time and they could not be bothered to argue the case any longer. The way in which the matter was conducted in the other place has not enhanced the reputation of Parliament and compares unfavourably with the way in which the consideration of the Bill—I do not say all Bills, but this Bill—has been conducted in this place.

Given that I am happy again to put on record that the Minister has been far more gracious than his noble Friend appears to have been to my noble Friend, I hope that he will place on record an acknowledgement that it was her hard work and persistence, in the face of repeated and sometimes rather unsavoury stonewalling by the Minister in the other place, that ensured that this important amendment has been made to the Bill.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

The hon. Gentleman took about 12 minutes to make a meal of what happened in the Lords. He told a fascinating story of intrigue, conflict and passion which set the blood racing through my veins. I am very happy to pay tribute to Baroness Miller, whose role is clearly set out in my brief, although I did not mention her contribution in my speech.

Just as Baroness Miller personifies tenacity, my noble Friend Lord Sainsbury personifies courtesy and politeness. The picture of my noble Friend painted by the hon. Gentleman is unrecognisable. I would have thought that Baroness Miller would be the last person to suggest that my noble Friend was in any way discourteous or patronising. It is not in his blood to be that way. He would probably find it physically impossible to behave like that—unlike me; I am just a ruffian.

Philip Hammond (Conservative, Runnymede and Weybridge)

Baroness Blatch was moved immediately the Minister sat down on Third Reading in the other place to say that, in not acknowledging the role of my noble Friends,

"the Minister has been extremely ungracious"—[Official Report, House of Lords, 27 June 2002; Vol. 636, c. 1534.]

This is not just my view; it was that of my noble Friend and, I suspect, other Members of the other place at the time.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

It all sounds like a rowdy evening down at the Red Lion. The House of Lords doubtless gets into that state occasionally.

I will pay tribute to Baroness Miller for her contribution. I also pay tribute to my noble Friend Lord Sainsbury and his colleagues for doing an exceptional job on this Bill in the House of Lords for many weeks and even months. I am happy that on this issue we have reached a sensible conclusion, and I hope that the House accepts the Lords amendment.

Lords amendment agreed to.

Clause 43 — Union learning representatives

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move that this House agrees with the Lords in the said amendment.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to consider Lords amendments Nos. 59 and 60.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Amendments Nos. 58 and 59 deal with the order-making power under subsection (6). They make that order-making power subject to the affirmative procedure. That should ensure adequate scrutiny.

Amendment No. 60 has a similar effect. It ensures that the issuing of a code of practice under the clause is always subject to affirmative procedure. We think that both Houses should have the opportunity to scrutinise and debate the codes. Amendment No. 60 therefore ensures that if ACAS produces one or both of the codes, their issuing would always be subject to the affirmative procedure.

These are largely technical amendments, and I commend them to the House.

Philip Hammond (Conservative, Runnymede and Weybridge)

Once again, the Minister tells us that the amendments are largely technical, but if I understand it correctly—I stand to be corrected by the Minister—the effect of the principal amendment in the group is far from technical. It means that the procedure by which orders made by statutory instrument giving effect to the proposed rights for union learning representatives will be made under the affirmative rather than the negative procedure.

All Ministers and Under-Secretaries who have to deal with the Opposition's persistent attempts to amend legislation in Committee will know that one of the routine amendments tabled by Opposition Members is to invoke the affirmative procedure, in order to ensure that proper scrutiny of the measures introduced by statutory instrument is available to Members of both Houses of Parliament. We believe that that is extremely important. So, for the Minister simply to suggest that moving from the negative to the affirmative procedure is a technical matter is slightly disingenuous.

If the Minister had been able to concede a change from the negative to the affirmative procedure in other parts of the Bill, and indeed if Ministers in general had been able to do so for parts of other Bills, their opposite numbers on the Opposition Benches would have acknowledged that their concession was far from technical and in fact significant.

This is not an uncontentious area of policy. By means of statutory instrument, orders will be made to give effect to the proposed new rights for union learning representatives. I know that the House would not wish me to rehearse in their entirety the arguments in Committee about the wisdom or otherwise of imposing union learning representatives by statute. We acknowledge that in some workplaces they provide a constructive addition to the machinery of employee-management co-operation, and often play an important role in ensuring that skills and learning in the workplace are properly attended to. However, we and many outside organisations have expressed serious reservations about whether the same beneficial effects can be achieved when their role is imposed by statute as opposed to being negotiated between the parties in the workplace. So there is a great deal of attention focused on this clause.

George Osborne (Conservative, Tatton)

Does my hon. Friend remember from our Standing Committee debates that, according to the Government, the clause will lead to a massive expansion in the number of union learning representatives from just 3,000 now to 22,300 in eight years' time? [Hon. Members: "Hear, hear."] The cheers from Labour Members confirm that when their campaigns are funded by the trade unions, they pay back the favour when they are elected.

Philip Hammond (Conservative, Runnymede and Weybridge)

My hon. Friend is right; the proposal represents a massive expansion of trade union power. No one would argue with the introduction of learning representatives by consensus, where they will be able to deliver genuine benefit to workers and employers alike, as they have in many workplaces. The Government tell us that such representatives have had a positive effect in workplaces—ergo, if they are imposed by statute in all workplaces where unions are recognised, they will have a positive effect. I must tell the Minister that that is a serious non sequitur. We have severe doubts about the overall impact that the legislation will have if learning representatives are imposed in workplaces where industrial relations are not mature enough for them to prosper and serve the intended purpose.

The Economic Secretary countered the argument by telling the Committee how good the imposition of learning representatives would be for businesses and how all sensible, forward-looking employers would welcome their imposition by statute. I should make it clear that it was not the Minister for Employment Relations, Industry and the Regions who dealt with this clause in Committee.

When the Economic Secretary was challenged to say how many union learning representatives there were in his Department, as an enlightened employer, the answer turned out to be zero. One is bound to ask why, if it is so self-evident that introducing union learning representatives into a workplace is of huge benefit to the employer, Government Departments have not done so and, it appears, will do so only when required by statute. Perhaps these representatives are of such huge benefit to the employer that my hon. Friend the Member for Gainsborough (Mr. Leigh), the Chairman of the Public Accounts Committee, should consider whether Departments are passing up an opportunity to make themselves more efficient and effective.

Mark Prisk (Conservative, Hertford and Stortford)

The Minister said that the proposals have been warmly welcomed, yet we have learned of opposition on a number of occasions. For example, the Engineering Employers Federation said:

"The statutory imposition of this privilege will not improve employer relations, productivity or the learning levels of employees".

Does my hon. Friend agree that the way forward, as the federation suggests, is to act co-operatively? Is it not time that the Minister was honest and admitted that there has been clear opposition from many employers' groups?

Philip Hammond (Conservative, Runnymede and Weybridge)

My hon. Friend is right—there has been clear opposition from many employer groups, and it is pretty obvious that union learning reps can play a useful role in the workplace when they are introduced by consensus. They cannot deliver the same beneficial effect if they are imposed by statute. The Government's agenda in introducing statutory union learning reps is about repaying debts to their trade union paymasters. British business will pay the Labour party's election debts.

Rob Marris (Labour, Wolverhampton South West)

Will the hon. Gentleman give way?

Philip Hammond (Conservative, Runnymede and Weybridge)

No, because I think that the hon. Gentleman will want to catch your eye in a moment, Mr. Deputy Speaker—[Interruption.] He has indicated that he intends to do so, and I look forward to hearing what he has to say.

The issues to be dealt with by statutory instrument are significant for employers, so it is very important indeed to ensure that the Government are not pushed by trade union pressure beyond the point that they have agreed on. I therefore very much welcome the decision to make the measures subject to the affirmative procedure.

Rob Marris (Labour, Wolverhampton South West)

All I wanted to ask the hon. Member for Runnymede and Weybridge (Mr. Hammond) was where does the Bill say that union learning reps are being imposed? It simply talks about time off for union learning reps—it does not talk about their imposition, which the hon. Gentleman fears may damage industrial relations. Surely, the provision is about time off, not the fact that they exist, which may be one reason why, in a country with independent trade unions, the Minister could not say how many union learning reps there are in his Department?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I am pleased that the hon. Member for Runnymede and Weybridge (Mr. Hammond) supports the amendment which, I am afraid, is definitely technical. I did not say that it was a small or insubstantial technical amendment; I merely said that it was technical.

This general issue has been debated many times, and the Economic Secretary to the Treasury did a tremendous job of dealing with it in Committee. I shall be as gentle as possible to the hon. Member for Runnymede and Weybridge, as my criticism is not about him personally but about his party. The Opposition will have returned from the planet Zog when they no longer describe a modest proposal such as this amendment as a massive extension of trade union power. They should go and lie in a dark room, take a couple of tablets, and take another look at our proposal.

Mark Prisk (Conservative, Hertford and Stortford)

The Minister knows perfectly well, from Committee and Second Reading, that all the employers' organisations have said that this measure is of grave concern for large businesses and particularly for small ones. To sweep that concern aside, as the hon. Gentleman has tried to do, is not representative of his contribution to the Bill. It is a shame that he has adopted that attitude today.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Yes, I know of employers' concerns. However, I merely make the point that the proposal is not about a massive extension of trade union power.

Judy Mallaber (Labour, Amber Valley)

Does my hon. Friend agree that the amazing fuss about this in Committee seemed to demonstrate that the Opposition think that 20,000 trade union members are desperate to spend all their time organising all that learning? Of course, it is valuable to have union learning reps to assist and encourage trade unionists and workers in the workplace to take up learning opportunities, but it is often difficult to get people to take on that responsibility, even though they may wish to do so, because they can feel that they will be under even more pressure at work as they will not be given any assistance at all by their employers. In fact, if they knew—

Alan Haselhurst (Deputy Speaker, Saffron Walden)

Order. The hon. Lady has been here long enough to know the difference between an intervention and a speech.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I agree with my hon. Friend, who made an eloquent point. This is a modest proposal, which seeks to build on something that we initiated in 1997, which has become extremely popular with employers. It adds a new dimension to opportunities for lifelong learning, which were a manifesto commitment. We have met many employers' concerns and we shall look back—even Opposition Members will—in five years' time and wonder what all the fuss was about. I hope that the House supports the amendment.

Lords amendment agreed to.

Lords amendments 59, 60 and 61 agreed to.

Schedule 2 — Statutory Dispute Resolution Procedures

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I beg to move, That this House agrees with the Lords in the said amendment.

Alan Haselhurst (Deputy Speaker, Saffron Walden)

With this it will be convenient to consider Lords amendments 63 to 74.

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

Schedule 2 contains the text of the statutory dispute resolution procedures, which are the cornerstone of part 3, and have naturally attracted much discussion both here and in another place.

During and after the Committee stage, I said that we were prepared to look further at two aspects of the statutory procedures in response to points made by hon. Members—whether the statutory procedures could refer in some way to the need to investigate complaints, and whether they could refer to the right to be accompanied. We have since considered those issues in detail, and the Government introduced amendments in the other place, which deal adequately with those concerns.

Valerie Davey (Labour, Bristol West)

In that further consideration, is the issue of bullying at work taken seriously by the Government?

Alan Johnson (Labour, Kingston upon Hull West and Hessle)

I can assure my hon. Friend that it is. A private Member's Bill has been introduced on bullying, and we are pursuing the issue with the Health and Safety Executive, which is the right forum for tackling the problem.

We considered the issues in detail, and the Government introduced amendments in the other place which deal adequately with Members' concerns. In addition, their lordships raised new issues about the statutory procedures, to which we responded with amendments to the schedule. For example, they expressed concern that the procedures may inadvertently interfere with employees' rights to make protected disclosures about wrongdoing.

I shall describe in a little more detail the changes to be made by the amendments. First, Lords amendments Nos. 62, 63, 66, 67, 71 and 72 ensure that where the statutory procedures require the parties to write to each other, they can do so by sending either a copy or the original of the written communication. Previously, the schedule required them to send a copy on all occasions. That is a sensible change, which removes the possibility that parties may accidentally fail to follow the procedures. Lords amendment No. 68 is a technical amendment, which removes inconsistent wording from the standard grievance procedure. Where the statutory procedures require parties to meet, they refer to the holding of "a" or "the" meeting. However, the text of step 2 in the standard grievance procedure refers to the holding of "at least one" meeting. That was unintended, and the amendment ensures that meetings are described in a consistent fashion across the procedures.

Lords amendments Nos. 64, 65, 69 and 70 deal with investigations, and all arise from the many debates during the passage of this Bill about investigations. We have resisted the idea that the statutory procedures should refer to the investigatory process. The procedures are written as a series of concrete and verifiable actions. The investigatory process cannot be described in similar terms or in a way which would generally apply to many different cases and circumstances. None of the amendments therefore uses the word "investigations". Instead, we have approached the issue from a different angle. Our amendments refer to the outcome of the investigatory process—the information or evidence which it typically uncovers. Accordingly, the amendments place obligations on the parties to disclose the information on which they initiated their action against the other. The requirement to assemble and convey such information would in practice be a strong encouragement to the parties to ensure that an investigation occurs.

It being Seven o'clock, Mr. Deputy Speaker, pursuant to Order [this day], put the Questions necessary to bring proceedings on the Lords Amendments to a conclusion.

Lords amendments Nos. 62 to 95 agreed to [some with Special Entry].

Don Foster (Liberal Democrat, Bath)

On a point of order, Mr. Deputy Speaker. You may be aware that today the Government published their consultation paper entitled "Local Government Finance Formula Grant Distribution". There was coverage of that document in today's media, which is hardly surprising, as 40 copies of the document were sent last night to various local newspapers. However, no copies of the document were available to Members of Parliament this morning in the Vote Office, and only by lunchtime today were four copies of the document available in the Library.

Since the document is 194 pages long, it is clearly difficult for the 659 Members of Parliament to have photocopied versions of their own. The only way that I was able to obtain a copy was by sending a member of my staff to sit and camp at the doorstep of the Office of the Deputy Prime Minister. Can you advise me whether it is appropriate for such a document to be made available to the press, but not made available in sufficient quantity to Members of Parliament, who have a real interest in this vital subject?

Alan Haselhurst (Deputy Speaker, Saffron Walden)

The hon. Gentleman will understand that I have no immediate answer to that matter, beyond pointing out that it is a consultation document at this stage. I am sure that his point has been heard and that the matter will be remedied as soon as possible.