Employment Bill [Lords]

Public Bill Committee, 14 October 2008.

John Bercow (Conservative, Buckingham)

Before we begin, I have a few preliminary announcements. When I am in the Chair, right hon. and hon. Members may, if they wish, remove their jackets. Mr. Caton, my co-Chairman, will take his own view, and I am sure that he will inform you of that. Please ensure that all mobile phones, pagers and other such devices are turned off or switched to silent mode during Committee sittings.

There is a Ways and Means resolution in connection with the Bill, and copies are available in the room. I remind hon. Members that adequate notice should be given of amendments. As a general rule, my fellow Chairman and I do not intend to call starred amendments, including any that might be reached during an afternoon sitting.

The Committee will first be asked to consider the programme motion, on which debate is limited to half an hour. We will then proceed to a motion to report written evidence, which I hope we can take formally before we start clause by clause scrutiny.

Pat McFadden (Labour, Wolverhampton South East)

I beg to move,

That—

(1) the Committee shall (in addition to its first meeting at 10.30 a.m. on Tuesday 14th October) meet—

(a) at 4.30 p.m. on Tuesday 14th October;

(b) at 9.25 a.m. and 1.00 p.m. on Thursday 16th October;

(c) at 10.30 a.m. and 4.30 p.m. on Tuesday 21st October;

(d) at 9.25 a.m. and 1.00 p.m. on Thursday 23rd October;

(2) the proceedings shall (so far as not previously concluded) be brought to a conclusion at 4.00 p.m. on Thursday 23rd October.

It is a great pleasure, Mr. Bercow, to serve under your chairmanship. I am sure that you will guide us fairly and wisely during our debates.

The programme motion sets out up to eight sittings for consideration of the Bill. That should be adequate time to consider the key issues. The Bill is not the longest before the House in this Session, but it contains many important measures, which we will come on to. I welcome the hon. Member for Huntington to his place. Reshuffles have not disturbed our ongoing dialogue, which has been in place for some time and will certainly continue for up to another eight sittings.

Jonathan Djanogly (Conservative, Huntingdon)

It is, as ever, a pleasure to serve under your great chairmanship, Mr. Bercow. As the Minister said, it is good to be doing yet another Bill together, as the constant team amid the changes that we have seen. I congratulate the Minister on his recent elevation to the Privy Council. We broadly agree with the programme motion, but that depends, of course, on the number of amendments that appear over the next few days. However, as things stand, that is our position, and I hope that it remains so.

John Hemming (Liberal Democrat, Birmingham, Yardley)

It is a pleasure to serve under your chairmanship, Mr. Bercow. I congratulate the Minister on his promotion to the Privy Council. He will find that the programme motion is as controversial as it was in yesterday’s meeting, which took about two minutes.

John Bercow (Conservative, Buckingham)

Copies of any memorandums that the Committee receives will be made available in the Committee Room.

Clause 1

Pat McFadden (Labour, Wolverhampton South East)

I thank Members of another place who debated the Bill fully. The legislation we pass tends to look forward and to make reforms for the future, but this Bill begins with a legislative look over its shoulder. Clauses 1 and 2 are about returning to past practice in some ways.

Clause 1 provides for the repeal of the statutory dispute resolutions, which I will call “the procedures”, brought into force by regulation in 2004 under powers in the Employment Act 2002. When the procedures were introduced, the then Government Minister, Lord Sainsbury of Turville, said that we

“are committed after two years to a review of how the procedures operate in practice.”—[Official Report, House of Lords, 23 February 2004; Vol. 658, c. 101.]

We did that both internally and through the review of dispute resolution carried out by Michael Gibbons and published last year. It is widely accepted, and the review by Michael Gibbons confirmed, that resolving disputes in the workplace as early as possible is desirable for all concerned. The tribunal system is important for access to justice, but it would be a mistake always to regard arrival at the tribunal as evidence of the system’s success. Very often it is better if disputes can be resolved before reaching the tribunal. Over the years, the Government have tried to create a system that maintains the access to justice in the tribunals, but also encourages earlier dispute resolution. The 2004 procedures should, to some extent, be looked at in that light.

The procedures introduced a legal requirement for the parties in a dispute to seek to resolve it through what has become known as the three-step procedures. They require, first, one side to inform the other of the issue in writing; secondly, a meeting to discuss the matter; and finally, usually, an appeal process. It was important, and we will touch on it several times in our debates, that the procedures were not only written into law, as it were, but that they affected the balance of content and merit that a tribunal took into account when reaching a judgment. Under the current regulations, tribunals have to reject claims that do not meet the requirements concerning the submission of a written grievance and to increase or decrease awards if either side fails to complete the procedures.

An internal review in 2006 revealed concern among stakeholders about the impact of the procedures, so the then Secretary of State for Trade and Industry invited Mr. Gibbons to undertake an end-to-end review of the dispute resolution process. His terms of reference were to raise productivity through improved dispute handling in the workplace, to ensure access to justice for employers and for employees, and to reduce the costs involved for all parties. His report of March 2007 concluded that while the intention of the regulations had been right, their operation resulted in an unnecessarily high administrative burden for employers and employees and had unintended consequences which outweighed the benefits. Many businesses told the review that the procedures had led to the use of formal processes to deal with problems that could have been resolved informally. In my informal language, Gibbons’s overall conclusion was that the procedures drove disputes into the formal process too early and that they increased legal involvement and costs to all parties. We are, of course, concerned not only with justice, but with costs. If there is a mechanism that can deal with disputes in the workplace while decreasing costs for the parties, but that does not compromise justice, we should introduce it. That is the intention behind clause 1 and other clauses.

The Government published a consultation document alongside the Gibbons review. Respondents endorsed the conclusions of the review. I well understand the principles behind the 2004 changes, which were to set out clear steps that people should go through when there is a dispute in the workplace. Those principles were sound, but in the light of two years’ experience of operating them it is clear that there were unforeseen results when they were enshrined in legislation.

The system that will replace the three-step procedures, which is set out in the following clauses, gives tribunals more discretion and will try to avoid elevating process over merit, which was a key focus for Gibbons. The Government propose through the clause to repeal the 2004 procedures, but at the same time we will put in place a package of measures to encourage the continuation and spread of good practice designed to resolve disputes in the workplace early. Part of that package is a revised ACAS code, which will be principles-based and concise. There will also be an incentive for parties to comply with the code in the form of a power for tribunals to adjust upwards or downwards—I stress that that will be at their discretion—where the parties unreasonably fail to comply with the relevant ACAS code. There will also be enhanced resources for ACAS to run a new helpline, more pre-claim conciliation and so on.

We are abolishing the 2004 three-step procedures and replacing them with a new system that will be better funded and which is designed to resolve disputes in the workplace earlier. There will be up to £37 million of funding over three years for the set-up and running costs of the enhanced advice service. Additionally, funding for the early conciliation service has already been announced.

The Bill begins with a recognition that the 2004 regulations, while well intentioned, have resulted in an unforeseen formalisation of disputes. We are therefore acting to remove them. That will be the effect of the clause.

Jonathan Djanogly (Conservative, Huntingdon)

We open the debate on the opening clauses of the Bill, which deal with dispute resolution and tribunals. I mirror the Minister in noting that significant consideration has been given to these provisions and to the Bill as a whole in another place. It did a pretty thorough job. I say here and now that I do not intend to rerun all of the debates that were held in the Lords where that is not required. Hon. Members will see that from the amendments that have been tabled thus far. However, that will be required in a few instances.

Furthermore, my party recognises that the clause, which deals with employment dispute resolution, is an admission by the Government that their 2002 reforms of dispute resolution have failed and that they need to go back to what was there before and start again some six years later. We support the provisions of the clause, as proposed by the Gibbons review, although we note how unimpressed we are with the process that has come to this position over the last six years.

John Hemming (Liberal Democrat, Birmingham, Yardley)

My party, too, is sympathetic to the attempt to minimise the amount of paperwork involved in the process and to resolve issues on an informal basis at an early stage where possible. However, an eternal difficulty is that people are informed at the final stage—whatever that may be—of how much paperwork they should retain at the early stages, once they have had the experience. I have seen this matter from many different sides, in various circumstances as a representative of employees in internal disputes and as an employer. The steps to try to resolve things through written submissions rather than a hearing are crucial. The Government should be aware that whatever the final conclusions are, they will inform the early stages.

Although it is good news that the Government have recognised that things have become over-formal, unless serious efforts are made to ensure that the issues of dispute are identified at an earlier stage, we will end up with the same problem in the same circumstances. So this is generally a good direction, recognising the errors that were made previously, but it remains a challenging area to resolve.

Michael Jabez Foster (Labour, Hastings and Rye)

I, too, am honoured to serve under your chairmanship, Mr. Bercow.

This is absolutely the right thing to do. Whatever we think about statutory codes, employers, particularly small employers and certainly individuals who are not members of trade unions, simply do not understand what they are about. Perhaps I should declare an interest. I have a practising certificate and was previously appointed as a part-time chairman of tribunals. It is clear that people do not understand statutory codes. They understand simple, straightforward guidance. May I therefore also congratulate ACAS on the draft code that the Minister has kindly circulated? If that is to be the new standard, it is a gold standard which certainly could be a precedent for much else in the world of employment law. On this, we are absolutely at one.

Clause 2

Pat McFadden (Labour, Wolverhampton South East)

This is the second part of looking over our shoulder in the sense that the clause will return us to what we call the Polkey line in unfair dismissal cases. The House of Lords judgment in the 1987 Polkey case established the precedent that dismissal could be unfair purely on procedural grounds. However, the judgment also provided that in those circumstances the tribunal could reduce the compensation to the claimant, or eliminate it completely, in proportion to the likelihood that the dismissal would have gone ahead even if the correct procedure had been followed.

Why do we need to take such action? Having decided to repeal the statutory procedures, which we discussed under clause 1, we had to reconsider the procedural fairness provisions that went alongside them. That question was raised in the Government’s consultation on the Gibbons review and an additional detailed review of the different options was issued alongside the main consultation. One option—the one we have chosen—was to revert to the Polkey case law.

Another option was the no difference rule. Where a dismissal was unfair, provided that it could be shown that the failure to follow procedures made no difference to the decision, it would not need to be taken into account. Employees, in particular, felt that that was unfair because it gave employers a blank cheque to ignore procedures in these cases. On balance, we decided to recommend returning to the Polkey line—and, indeed, more people involved in the consultation supported returning to Polkey than to the no difference rule. Therefore, we propose to repeal section 98A of the Employment Rights Act 1996 to revert to the Polkey line of cases.

Clause 3

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 14, in clause 3, page 1, line 11, after ‘subsections’, insert ‘(1A),’.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss the following amendments: No. 11, in clause 3, page 1, line 11, at end insert—

‘(1A) In section 199 (Issue of Codes of Practice by ACAS) at the end of subsection (2) there is inserted—

(ca) discipline and grievance procedure, and’.

No. 5, in clause 3, page 2, line 2, after ‘with’, insert ‘the’.

No. 6, in clause 3, page 2, line 9, leave out ‘a relevant’ and insert ‘the’.

No. 8, in clause 3, page 2, line 10, leave out ‘that’ and insert ‘the’.

No. 7, in clause 3, page 2, line 19, leave out ‘a relevant’ and insert ‘the’.

No. 9, in clause 3, page 2, line 20, leave out ‘that’ and insert ‘the’.

No. 10, in clause 3, page 2, line 26, leave out from ‘(3),’ to end of line 28 and insert—

‘“the Code of Practice” means any Code of Practice issued by ACAS under section 199(2)(ca)’.

Jonathan Djanogly (Conservative, Huntingdon)

Although there are many amendments, they all do pretty much the same thing. They look at what constitutes the defined code of practice in dispute resolution. I shall consider some of the wider issues in the code in the stand part debate. I direct the Committee to the debate in the other place on this matter. Lord Bach, the then Minister, confirmed that six codes were currently issued under chapter 3 of the Trade Union and Labour Relations (Consolidation) Act 1992. By his own admission, the drafting of the clause was deliberately wide to allow for flexibility to cover other present or future codes.

While I agree that we have no interest in hamstringing ACAS, there is a need for certainty on this front. Employers are placed in a disproportionately burdensome position whereby they are forced to comply with broadly defined procedures. To prevent undue expense and time-consuming second-guessing of the legislative intention by employers, would it not be prudent to specify the relevant code from the outset as the ACAS code of practice on discipline and grievance procedures? Would that not be preferable to a definition that encompasses six separate procedures but expects compliance with only one? There is a need to give employers a clear, well sign-posted route for dealing fairly and efficiently with disciplinary procedures. It is a course of action that, for most, is a last resort. It benefits neither the employer nor employee to have an opaque legislative procedure, which leaves both parties in the dark. This is especially true given the financial penalties for non-compliance.

John Hemming (Liberal Democrat, Birmingham, Yardley)

We broadly support the amendment. When there are statutory codes and a process that people need to follow, clarity is greater and things are easier.

Pat McFadden (Labour, Wolverhampton South East)

I thank the hon. Member for Huntingdon for the spirit in which he moved the amendment. My response is about future-proofing the Bill. The clause is important and goes wider than the subject matter of the amendments. I am sure that we will return to that on clause stand part. The clause is about the balance between content and merit, which I mentioned in my opening remarks. It includes the capacity to vary awards based on the degree of adherence to the codes issued under it.

The definition of a relevant code of practice was, as the hon. Gentleman pointed out, discussed in the other place. A relevant code of practice is one issued under the Trade Union and Labour Relations (Consolidation) Act 1992, which relates exclusively or primarily to procedures for resolving disputes. The hon. Gentleman correctly said that there was more than one code. There are currently six codes, some relating to disclosure of information to trade unions for collective bargaining purposes and others relating to industrial action, picketing and so on. Those matters need not concern us here and are not covered by the clause.

Of the existing codes, the definition of a relevant code of practice in the clause would apply only to the ACAS code of practice on disciplinary and grievance procedures. I endorse what my hon. Friend the Member for Hastings and Rye said a few moments ago about the valuable work that ACAS does and its expertise in these areas. The clause will also allow the application of adjustment in the context of future relevant codes issued by ACAS or the Secretary of State under the 1992 Act.

The amendments would have two effects. First, they would tie the definition of “relevant Code of Practice” to a code on discipline and grievance procedure issued by ACAS and not the Secretary of State. Secondly, they would provide expressly in the 1992 Act that ACAS’s power to issue codes encompasses codes on discipline and grievance procedure.

On the first point, ACAS certainly plays a crucial and valuable role in the resolution of workplace disputes, as I have said. In my time as employment relations Minister, I have valued my working relationship with ACAS. That organisation is sometimes in a strange position because its successes do not reach the news. It resolves many issues without their spilling over into a wider problem of industrial relations. The drafting of the clause to refer to codes issued by ACAS or the Secretary of State is therefore not intended to belittle or downgrade the role of ACAS. However, under the amendments, it would not be open to the Secretary of State to issue additional codes if he or she so wished. While there is currently no intention for the Secretary of State to issue a code of practice under this provision, the power exists and the Government do not wish to exclude the possibility that it might be used. It would therefore not make sense for tribunals to be unable to take account of the provisions of such a code, were it to be issued.

We believe the second proposal to be unnecessary. Under section 199 of the 1992 Act, ACAS has the power to issue codes of practice as it thinks fit to promote the improvement of industrial relations. That covers the issue that we are discussing.

We believe that the first effect of the amendments would be to tie the hands of future Secretaries of State in issuing codes alongside the ACAS codes. The second effect is unnecessary. On that basis, I hope that the hon. Gentleman will not press the amendment.

John Hemming (Liberal Democrat, Birmingham, Yardley)

Does the Minister accept that employers and employees both need certainty and that the Department should be guided by that need when issuing guidance and identifying what is and is not relevant?

Pat McFadden (Labour, Wolverhampton South East)

I accept that clarity is needed for employers and employees. I do not believe that building in the possibility for the Secretary of State to issue a code detracts from that clarity. I have been quite clear that the code we are talking about in the Bill is the ACAS code.

Brian Binley (Conservative, Northampton South)

May I add my expressions of pleasure at serving under your chairmanship, Mr. Bercow? It is always clear, with no confusion whatsoever, and we are grateful for that.

May I, too, question the Minister about simplicity? The Bill was originally intended to be a simplification of what is pretty complicated law for laymen to deal with. That is what matters. We are dealing in many cases with very small business people who cannot afford recourse to the law on such issues. They try to do their best, but find it a nightmare. The complication that we create in this law leads to a compensation culture, which is not healthy, especially for small businesses. Over the next two years, it will be particularly unhealthy because, as we all recognise, such businesses face massive strains.

Having represented my company in days gone by in three tribunals, I know how much the law has been misunderstood. I know also how effective ACAS is in helping with these matters, particularly in supporting both sides in such disputes. To complicate the law beyond that process seems to me simply to add further problems, not only for small businesses that deal with these matters from an employer side, but for employees.

I would like to make one further point. Employees often have recourse to Citizens Advice and receive legal representation as a result, but many employers are unable to do that. There must be a balance. Establishing one code of practice is an important part of that balance because everybody knows where to go. Everybody knows in the first instance that ACAS is the authority. To complicate that particular trend seems unhelpful. I urge the Minister to think again.

Jonathan Djanogly (Conservative, Huntingdon)

I had intended the amendment to be probing, but I will have to go away and think further about it. Having heard the Minister, I am not totally satisfied. I always feel rather uncomfortable when I hear a Minister say that we need to legislate for what might need dealing with in the future, and that the Secretary of State might need such powers. I get the same chilly feeling that I had yesterday evening when I heard the Home Secretary say that she was going to put her draft Bill in the Library.

I agree with my hon. Friend the Member for Northampton, South. Businesses expect clarity. They will want at the very least a full explanation of what this legislation means for them. There is potential for things to be changed and for them not to hear about it, and to therefore be confused as a result.

Hugo Swire (Conservative, East Devon)

Does my hon. Friend agree that in the present economic climate, it is even more important to be clear about what we are asking businesses to do and how they should change? The cost implications of those changes will not be inconsequential, at a time when most companies are struggling to survive.

Jonathan Djanogly (Conservative, Huntingdon)

My hon. Friend makes an important point that I will use when discussing other aspects of the Bill. I thank him for making it now as it is relevant.

We will go away and think about this matter further. In the meantime, I beg to ask leave to withdraw the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 3, in clause 3, page 2, line 15, leave out ‘25%’ and insert ‘50%’.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss amendment No. 4, in clause 3, page 2, line 25, leave out ‘25%’ and insert ‘50%’.

Jonathan Djanogly (Conservative, Huntingdon)

This is another probing amendment, which attempts to discover the Government’s reasoning behind the reduction in the power of employment tribunals to vary awards for non-compliance from 50 to 25 per cent.

The first question we must ask is whether this is yet another example of the Government tinkering with regulation unnecessarily. Section 31 of the Employment Act 2002 provided employment tribunals with the power effectively to punish employers or employees who failed to comply with the statutory disciplinary and grievance procedures. That Act enabled—indeed, obliged—employment tribunals to vary awards made to employees by anywhere between 10 and 50 per cent., depending on what they considered just and equitable. I confess that I am no statistician, but I have trouble seeing how reducing the maximum figure from 50 to 25 per cent. does anything other than blunt the teeth of the employment tribunals and reduce the scope for dealing with vexatious claims.

Furthermore, by reducing the penalties for non-compliance, could it not be said that the suggestion to employers is that compliance with the new ACAS code of practice for discipline and grievance is somehow less important than compliance with the previous code? In the other place, Lord Jones of Birmingham, then a Minister, stated that the power to adjust awards up and down was

“an incentive mechanism to encourage parties to follow good practice.”—[Official Report, House of Lords, 4 February 2008; Vol. 698, c. GC465.]

Furthermore, Michael Gibbons in his report recommended that there be an incentive to comply with the code. While I agree that those are laudable aims, I cannot help feeling that the incentive has had its legs cut from under it and become half the incentive that it could have been.

With that in mind, I ask the Minister two simple questions. What is the Government’s rationale for changing the figures? Secondly, why choose 25 per cent.? I am also curious as to how the Minister and the Government envisage employment tribunals enforcing a non-statutory, principle-based procedure for dispute resolution.

The 2006 consultation on the Employment Act 2002 stated:

“The Employment Tribunal Service will be able to monitor the number of cases where failure to comply with the procedural elements becomes an issue, including the number of cases where awards are adjusted because of procedural failings.”

Yet from what I have been able to discover—I would appreciate it if the Minister put me right—no such figures have been produced. Can he tell us why and give us those figures now? Without knowing how the existing system has been working, how can we get the system right with this Bill?

John Hemming (Liberal Democrat, Birmingham, Yardley)

We are perhaps more sympathetic to the Government on the 25 per cent. figure, but that obviously depends on the Minister’s answer to the question at hand. Compliance with the codes is perhaps a procedural issue, rather than a substantive one. Inasmuch as the Bill is orientated towards the substance of the issue, we do not feel that it necessarily would be good—for employers or employees—to revert to a greater focus on procedural matters and change the 25 per cent. figure to 50 per cent. Hence, we are generally with the Government on this.

Michael Jabez Foster (Labour, Hastings and Rye)

I certainly want to resist the amendment. I am surprised that it comes from the quarters that it does, because powers have previously been used against employers, usually small employers who have simply not understood the procedural requirements.

Jonathan Djanogly (Conservative, Huntingdon)

My point was that we do not have the figures about how powers have been applied. I would be grateful if the hon. Gentleman put us right on those figures.

Michael Jabez Foster (Labour, Hastings and Rye)

My evidence is empirical. I agree that the substantive figures would be helpful. However, anyone who deals with small employers—not just as a lawyer but in their constituency surgery—knows that it is they who almost inevitably fall foul of the procedural rules. The hon. Gentleman seems to be penalising small employers because of some failure on their part, as we discussed earlier, to have the resources to access knowledge across the board. They do not even have the ability to go to Citizens Advice for support, as employees may. This amendment is therefore targeted against small employers, which is wholly unfortunate.

Pat McFadden (Labour, Wolverhampton South East)

Let me first deal with the point about figures. I do not believe that the tribunal service issues a breakdown of the cases in which the current variance of 10 to 50 per cent. is used, but it has told officials in my Department that the top end of that variance is rarely reached.

The more substantive issue before us is what the degree of adjustment on procedural grounds should be. I started my remarks today by saying that the Bill has a thread running through it, which is the balance between procedure and merit in tribunal cases. The hon. Member for Birmingham, Yardley got it right when he cautioned us against running against the Bill’s general direction by elevating procedure to too great a level above merit. My hon. Friend the Member for Hastings and Rye is also right when he says that the effect of the amendment, if accepted, could be that a small employer, having perhaps been substantially correct in the case presented to the tribunal, is hit with a 50 per cent. increase in the award against them because of the procedural weakness of not appealing to the ACAS code. The reason why we are removing the 2004 procedures, as set out in clause 1, is that, having reviewed their operation for a few years, we concluded that process was being elevated above merit. I fear that the amendments would lead us to fall back into that trap.

Hugo Swire (Conservative, East Devon)

In reviewing that matter in the legislation, has the Minister or any of his officials discussed the implications with the Federation of Small Businesses?

Pat McFadden (Labour, Wolverhampton South East)

Yes. We discuss all our employment matters with the main business organisations regularly, including the Federation of Small Businesses, the CBI and others.

Another issue to remember is that, whereas the 2004 procedures required tribunals to elevate procedure above content, under the changes that we are bringing in, that judgment will be for the tribunal to make. The hon. Member for Huntingdon asked why the figure was 25 per cent. instead of another one. These matters are not an exact science; where we set the figure is a matter of judgment. Our policy aim is to not elevate process above content, and to not allow procedure to be simply disregarded. We want to get that balance right by allowing tribunals, at their discretion, to vary an award if there has been an unreasonable failure to adhere to procedures.

Clause 3 creates an incentive mechanism by proposing that tribunals be allowed—not required—to adjust awards by up to 25 per cent. if either party has acted unreasonably in failing to comply with the relevant code of practice. An adjustment of 50 per cent. would take us back to the system that the Bill is trying to reform and would perhaps repeat the unforeseen consequences of the 2004 procedures that we are trying to move away from.

Jonathan Djanogly (Conservative, Huntingdon)

The first point to make is that the Minister has admitted that the figures do not exist, even though in 2002 it was claimed that they would. We are all operating in the dark; we do not know what the situation is. The Minister said that it is not an exact science; I say that he is sticking his finger into the wind. We are hindered by a lack of information but I am starting to see the problem, which the hon. Member for Hastings and Rye elaborated on and the Minister confirmed.

The hon. Gentleman and the Minister seem to be saying that they understand the concerns of companies and small businesses, and that they are unsure of the tribunals’ ability to get to grips with the problems of putting companies and employees on an even procedural footing and of dealing with vexatious claims. In other words, if the figure were 50 per cent., it could be used disproportionately against companies, rather than employees. In that context, I can see why the figure is capped at 25 per cent. rather than 50 per cent, but that does not make it right. Equally importantly, it shows that the Bill will not have the impact that the Minister has claimed.

Barry Gardiner (Labour, Brent North)

On a previous amendment the hon. Gentleman asked for increased clarity. Does he not accept that reducing the scope by which any penalty may vary from 50 to 25 per cent. gives the clarity and certainty that small businesses would welcome?

Jonathan Djanogly (Conservative, Huntingdon)

No, I totally disagree with the hon. Gentleman. If companies and employees were to be treated on a fair and equal basis and the figure was 50 per cent., that figure could well act as a disincentive against vexatious claims. The point that the hon. Member for Hastings and Rye and the Minister made is that companies and employees may not be treated in the same way, and that companies may therefore lose out. I tend to agree. We do not know whether we can agree because we do not have the figures. So, as I said before, we are thrashing around in the dark here.

Pat McFadden (Labour, Wolverhampton South East)

Let me cast some light. The hon. Gentleman referred to vexatious claims. Surely he accepts that vexatious claims can be dealt with at a pre-hearing review and that the tribunal will recognise them as vexatious and will not find in favour of the person who brought them. To elevate this procedural device of saying that not adhering to the code should be matched with an ability to vary awards up or down by 50 per cent. will not deal with an issue of vexatious claims. They can either be dealt with in the current process, or the target would be missed.

Jonathan Djanogly (Conservative, Huntingdon)

The Minister pre-empts my final point; I am going to agree with him. When we get on to vexatious claims we do have some figures. We will come on to that because I have great concerns about those figures, but to my mind it is impossible to separate the debate between the procedural and the vexatious; certainly, the average small company would not do so. For them, it is all part of the same problem. As the Minister says, the Bill separates the procedural from the vexatious and is rather toothless as a result.

Moreover, the Bill ignores the question of vexatiousness, so we have tabled amendments to remedy that. I am sad to see that those amendments are not being considered under this clause. I feel that they should be, but that is a decision taken by others and I respect it. We will come to that issue at a later stage, but the Minister will take the point that vexatious claims are not dealt with in the Bill, and that is what will most concern small businesses. On the basis of what we have heard, we will wish to reconsider our position on these clauses, and I seek leave to withdraw the amendment.

John Bercow (Conservative, Buckingham)

Order. I make it clear to members of the Committee that ordinarily when someone seeks leave to withdraw their amendment, I will immediately put that question to the vote. Similarly, if an hon. Member seeks to push their amendment to the vote, I will immediately put it to the vote. In this case I have received a slightly belated indication from the hon. Member for Birmingham, Yardley that he wishes to speak on the matter and on this occasion I will happily allow him to do so. Hon. Members will quickly discover that I am a facilitator. I want them to contribute but unfortunately I am not psychic, so an hon. Member who wishes to catch my eye cannot rely simply on raising their eyebrow. They need to rise and indicate their wish to speak.

John Hemming (Liberal Democrat, Birmingham, Yardley)

Thank you, Mr. Bercow. On a procedural matter, although my declarations of interest are a matter of public record, I should like to add to that record. I am a member of the Federation of Small Businesses, which has not been mentioned so far. I am an employer as well as having been on various sides of employment tribunals. The issue of substance is whether vexatious matters have any substance. Vexatious cases do not have any substance. Therefore they would not be found on a substantial basis, so this is totally irrelevant to the question of whether any application to a tribunal is vexatious. The question is whether it satisfies the procedural process. The Government’s direction of travel is right. Perhaps we would prefer 22.596 rather than 25 per cent., but that is not really an issue of substance.

Jonathan Djanogly (Conservative, Huntingdon)

I understand that the procedural formalities here mean that I must again seek the Committee’s leave to withdraw the amendment, so I beg to ask leave to withdraw the amendment.

Pat McFadden (Labour, Wolverhampton South East)

I beg to move amendment No. 1, in clause 3, page 4, line 3, after ‘Society)’, insert—

‘Regulation 17 of the Cross-border Railway Services (Working Time) Regulations 2008 (SI 2008/1660) (breach of regulations)’.

I refer the Committee to proposed new schedule A2 on page 3 of the Bill, which sets out a list of jurisdictions to which the rest of the clause applies. In other words, those are the enactments under which someone could pursue a claim under the clause.

Government amendment No. 1 will add an enactment to that list. It is periodically updated as employment law evolves. As we have discussed, tribunals can apply an adjustment to proceedings under the jurisdictions, as set out in new schedule A2. That schedule replicates the jurisdictions listed in schedule 3 to the Employment Act 2002 and covers the vast majority of the jurisdictions of claims accepted by employment tribunals.

In a sense, the amendment can be put down to timing. Following Third Reading of the Bill in the other place, the Cross-border Railway Services (Working Time) Regulations 2008 came into force on 27 July. I am sure that all hon. Members noticed that at the time. Those regulations transpose a European directive on working conditions for railway workers on cross-border railway services. For example, they allow a worker to complain to an employment tribunal if his employer has refused to permit him to exercise rights relating to rest, break periods and so on. Regulation 17 was inserted into schedule 3 to the Employment Act 2002. This is a consequential amendment that will add regulation 17 to new schedule A2 as a jurisdiction to which the new adjustment provisions will also apply.

Jonathan Djanogly (Conservative, Huntingdon)

In principle, we see no reason to oppose the amendment. Perhaps the Minister could clarify who constitutes a cross-border worker for the sake of the remedies provision. Does he have figures for the number of times such remedy claims have been successful, and in how many of those cases would a tribunal have varied the award on the basis of a failure to comply with the code? Finally, does the Minister believe that the amendment will have any cost implications?

Pat McFadden (Labour, Wolverhampton South East)

An example of the type of worker involved is somebody working on a railway service through the channel tunnel, which is a cross-border railway service. This provision will apply to their breaks, rest periods and so on. The hon. Gentleman asked how many times the tribunal will be able to take cases. That is a matter for the future, not the past. The cost implications for employers operating services through the channel tunnel will depend on the extent to which they adhere to the working time regulations. If the regulations are contravened, there will of course be a cost implication. As in all of these matters, there is a very easy way to avoid cost implications: to adhere to the law in the first place.

Jonathan Djanogly (Conservative, Huntingdon)

I would like to continue probing this part of the Bill. I note with interest the comments of Lord Henley in the other place on the circulation of the draft ACAS code. He was concerned that the other place was furnished with a copy of the draft code only on the morning that it was to be debated.

Given the importance of the new code and the fact that it forms much of the core of the Bill, I would be grateful if the Minister enlightened the Committee on the consultation process that was undertaken. I am aware that the consultation was initiated and subsequently undertaken by ACAS. I would be grateful if the Minister answered the following questions on the consultation process. What format did the process take and which organisations were contacted? What responses were received and will the House have the opportunity to see them?

A shorter, more concise code is to be welcomed. I know that most employers will welcome the emphasis on informal dispute resolution, but will the lack of guidance given by the principle-based approach increase the workload of the employment tribunals? I hope not, but will the Minster give his view? I thank him for sending through a finalised version of the code—I think that it arrived last Friday. He will appreciate that we have had a short time to review it, and we will need to seek people’s views and possibly come back to him at a later stage.

Having looked through the code, I would like the following points, on the code’s paragraphs, to be addressed. The advice at point 5 of the original draft code issued by ACAS stated:

“Employers and employees should do all that they can to resolve disciplinary and grievance issues in the workplace. Recourse to an employment tribunal should only be a last resort.”

Why has that express and clear statement been removed? Point 8 states:

“In cases where a period of suspension with pay is considered necessary”.

Some employment lawyers have been saying that there is a need to clarify that, given the number of possible reasons for those cases. Is there a need to specify the situations where it is needed? In point 13, the phrase “workers” is used in the body of the section, yet the title states “employees”. We need consistency, especially as the words may convey different ideas and roles. In point 20, should “further misconduct” not become “any misconduct”, thus removing any impression that the subsequent misconduct needs to be associated with the former? It would also ensure that minor misconduct does not slip through the net. After point 33, should powers to investigate the reported grievance and then to discuss it with the employee not be included? The manager should be able to undertake an informal fact-finding procedure before formal proceedings are initiated.

What prevents employment tribunals and courts from seeing the code as statutory again, and how will the Government avoid that? Does ACAS see it as an organic code that will be reviewed and changed as needs be? If so, how frequently is it intending to review the code? How much discretion will employment tribunals have with regard to those who follow the spirit rather than the letter of the code, especially small businesses that may lack the human resources capability of others? How do the Government propose to make small businesses aware of the new code? That action is very important in itself.

John Hemming (Liberal Democrat, Birmingham, Yardley)

All parties are in agreement with the Bill’s direction, which is towards clarity and ensuring that issues are resolved at an early stage with the least formality—although one does need formality at a certain point, so that people know that there is a formal grievance. I ask the Minister to recognise that there are different ways of achieving that clarity and informality. It is when one gets the whole package, including any departmental guidance, that one has what people have to face. Even if it is not specified in the Bill, departmental guidance that clarifies which code of practice to follow in which circumstance is important. It is straightforward for a smaller business to look it up and not to have to bring in legal advisers, even if some organisations provide legal support. Clarity and simplicity are the order of the day.

Pat McFadden (Labour, Wolverhampton South East)

It is right that we consider clause 3 in the round, and the ACAS code in particular. The code is an important part of the system, which will replace the 2004 procedures abolished by clause 1. It is more principles-based than some previous ACAS codes, because we have had an important dialogue with business and employee representatives. Some respondents have said that they do not want a lengthy procedural handbook that they have to cover, but that they want to know in broad terms what they have to do to be fair.

The hon. Member for Huntingdon asked whether tribunals have discretion in this area. They do and that is one of the changes that we are making from the 2004 procedures, where the elevation of procedures was more automatic. The ACAS code that we have proposed is more principles-based. The draft code has been circulated. It will allow tribunals greater discretion in the varying of awards.

Brian Binley (Conservative, Northampton South)

The Minister clearly recognises that vexatious cases can be a problem. He points to a strengthening of the code. My experience is that often, ACAS, and its code, have shied away from the issue of vexatious cases in reality because it is fearful of being labelled anti-employee or anti-employer. That is a real concern. Will the Minister take that into account and genuinely consider strengthening the code and the conciliation that follows in this respect? That would take away much of the concern that small businesses have about this matter.

Pat McFadden (Labour, Wolverhampton South East)

The hon. Gentleman makes a fair point about the fear small businesses have of vexatious claims. The changes that we are making will help in that regard. Part of the problem with the 2004 procedures was that they often placed the claimant—if I may put it like that—on a fast track to tribunal, without going through the kind of conciliation that could have solved the problem outside of a tribunal. Later, we will consider ACAS and time limits on intervention, which is another relevant issue. The system that the Bill creates places greater emphasis on pre-claim conciliation. ACAS will have more money to do that through the extra funding, and an expanded helpline will help with that. We will go a long way towards meeting the hon. Gentleman’s legitimate point.

I return to the questions that the hon. Member for Huntingdon asked about the code. The consultation on the code was with ACAS’s usual stakeholders—not a term I always like, but I use it for want of a better one. They include the business organisations, some of which have been represented here, the trade unions and others in this field. I understand that about 170 responses were received during the consultation on the code. ACAS has a balance to strike because some people’s responses will be that they want the code to cover everything—to mention this, that and so on—and others will be that they want less and less in the code. I think that ACAS is right to go for a principles-based code because we are trying to reach an end product that can be read and dealt with by businesses of all sorts and sizes. We are talking about busy people so it is correct to have something that is short, concise and principles based.

The publication of consultation responses is a matter for ACAS. The normal practice is that consultation responses are made available unless the person who submitted the response requests otherwise.

Is the code set in stone for ever? No, ACAS may revisit it. However, we have spoken of the virtue of clarity. When the code is settled, laid before Parliament and approved, I do not think that we will want ACAS to revisit it any more than necessary. In that way, businesses and employees will know what is involved and what is required of them.

The hon. Gentleman asked various other questions, for example, whether the size and resources of business could be taken into account. Yes, they can. He also mentioned the worker-employee distinction. That distinction is recognised in law, and the terms are used precisely. The hon. Gentleman will be aware—this is not a debate for this Bill—that the employment rights and the obligations attached to a worker are different from those attached to an employee, and that distinction exists in law.

The new code is more principles based, and tribunals, employees and employers are asked to have regard to it. It also contains a discretionary power for tribunals to take into account such regard when assessing awards, and to adjust awards by up to 25 per cent. if either party has acted unreasonably in failing to comply with the code. I emphasise that the power is discretionary; it is for employment judges to apply depending on the case, without the rigidity of the previous automatic link to the statutory procedures that we discussed earlier. As we discussed in relation to the amendment that I moved, proposed new schedule A2 lists the enactments that apply to the clause and to the power to vary awards. I commend the clause to the Committee.

Jonathan Djanogly (Conservative, Huntingdon)

I made some other points that the Minister has not mentioned, but I did make a lot of points. Therefore, I would be most grateful if he would go away and look at what I said, and address a letter to the Committee on some of those points.

Clause 4

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 13, in clause 4, page 4, line 13, leave out ‘only’.

John Bercow (Conservative, Buckingham)

With this it will be convenient to discuss amendment No. 12, in clause 4, page 4, line 14, at end insert—

‘(za) the proceedings relate to a money dispute, and’.

Jonathan Djanogly (Conservative, Huntingdon)

This is a probing amendment, to open up this important clause to wider discussion and perhaps clarification.

Michael Gibbons’s 2007 report “Better Dispute Resolution: A review of employment dispute resolution in Great Britain” recommended that some cases before the tribunal should be dealt with by a fast-track procedure. His emphasis was on the settlement of monetary disputes on issues such as wages, redundancy and holidays, as the legal points at issue were simple and would be resolved more quickly by expert determination. However, in the debate in the other place the matter got confused, and it is necessary to make it clear when a full tribunal hearing is required and when a fast-track individual hearing is appropriate. Specifically, there seemed to be confusion in the other place about whether the Government intended the process to apply solely to monetary claims.

The balance that must be struck is between comprehensiveness, fairness and cost. The aim of an abbreviated fast-track process must be to deal quickly and fairly with those cases that do not need a full tribunal. I support proposals for a system that, in the words of the Minister in the other place,

“will deliver swift and effective justice and help many claimants to receive redress early, potentially relieving them from hardship and uncertainty”.

The Minister went on:

“Respondents will also benefit from having cases determined at an early stage, freeing them to concentrate on their businesses.”—[Official Report, House of Lords, 4 February 2008; Vol. 698, c. 487.]

That is all well and good, but care must be taken not to place an individual in a weaker position for the sake of expediency. We need to limit the role of single-member tribunals to dealing with those cases that are so clear-cut as to be almost procedural. There is something worrying about limiting a claimant’s right to a review by a full panel in all but the most simple and incontestable cases.

If we are to introduce a written consent process, as envisaged by proposed new subsection (3AA) to section 7 of the Employment Tribunals Act 1996, provision must be made to ensure that that cannot be abused. I am especially concerned about the role of deemed consent to a single-person tribunal. To that end, I would be grateful if the Minister could make clear to the Committee the limits of the proposed new subsection: the claims to which the fast-track process would apply, and what form consent in writing to a single-member tribunal would take.

John Hemming (Liberal Democrat, Birmingham, Yardley)

This comes down to the good old article 6 question of whether people are having a fair hearing. The bigger issue that needs clarification is proposed new subsection (3AB). Logically, if both parties agree that there should not be a hearing, there will not be one. That is entirely fair. There is a point about fast track. If we aim to resolve things prior to tribunal in the conciliation process, one would hope that there was a fast track in initial determinations to suggest such a resolution.

We see no reason why the word “only” should disappear, although it seems otiose in the circumstances, as the tribunal would have to be given a power to determine something without a hearing. Therefore if it does not have that power, it will not be able to determine it without a hearing. That should be limited. The circumstances are reasonable, but some clarity is needed under proposed new subsection (3AB) because employers who feel that they have responded and are then told that their response does not count would have a real problem. Perhaps the Government should considering tabling an amendment on Report.

Nick Palmer (Labour, Broxtowe)

I should like to say how much I look forward to serving under your chairmanship, Mr. Bercow. I appreciate the point made by the hon. Member for Huntingdon, but the amendment does not seem to address the key issue. If there is mutual consent or if one side has not bothered to put in a substantive case, it seems obvious that the matter should be fast-tracked, entirely independently of whether it is a money issue or something else. I take the point made by the hon. Member for Birmingham, Yardley: we need to be clear about the exact meaning of proposed new subsection (3AB) because there should not be any doubt. We have sufficient trust in the tribunal system to believe that a reasonably adequate request for a hearing would not be dismissed purely on frivolous procedural grounds.

John Hemming (Liberal Democrat, Birmingham, Yardley)

Does the hon. Gentleman agree that it is particularly important to indicate to a respondent that their response has not been accepted and that they could submit an alternative before any written determination?

Nick Palmer (Labour, Broxtowe)

That sounds reasonable to me.

Michael Jabez Foster (Labour, Hastings and Rye)

Indeed. The point has been made about how an employer as a respondent has the opportunity to make his case. I ask the Minister to look at the current procedural rules more generally. Perhaps I can give him a short example of a local case that came to my notice. The employer did not receive the notice in time, or so he claimed. He sent something in slightly late—two days after the final date. The rules currently say that he cannot be heard. The only option was to go through the whole process with him sitting there watching, but not taking part, and then subsequently appealing to the AT to see whether there was another way. I do not know what happened as a result of all that. But the draconian nature of the current rules, which debar people from taking any part in proceedings, is unlike any other jurisdiction. In every other part of the legal system, so far as I am aware, by incurring a penalty or making a payment to the court or whatever, there is a way back into the proceedings. Uniquely within the tribunal rules, that does not apply. I ask the Minister to have a look at that if he agrees that it is an injustice.

Pat McFadden (Labour, Wolverhampton South East)

The clause was indeed the subject of considerable debate in the other place. That is understandable, because it deals with a traditional part of the tribunal process, and perhaps people are led to expect a full hearing with the tribunal chair and two lay members—or wing members as they are sometimes known. The question posed is whether that is always necessary in all jurisdictions and in all cases. Earlier we discussed faster and perhaps less costly mechanisms for resolving disputes, which is really what the clause is concerned with. The question at the heart of amendment No. 17 is: “If we are to have a system of written determinations or determinations without a hearing, what jurisdictions should that cover?”

The first point to make is that tribunal chairmen can already sit alone and deal with certain jurisdictions, so that is not new. I have written several times to hon. Members who have asked what jurisdictions I have in mind. They are largely, but not entirely, the same as those jurisdictions in which a tribunal chair can already sit alone—unlawful wage deductions, breach of contract, redundancy pay, holiday pay and minimum wage cases. The only difference is the addition of holiday pay.

That is the type of case to which we are referring, and the question at the heart of the amendment is how we define that in the Bill. Our intention, if introducing such a procedure, is to define in secondary legislation those jurisdictions to which it would apply. Were such a system to be introduced and prove successful, those jurisdictions might or might not change over time in the light of experience. The Government’s view is that it makes more sense to specify the jurisdictions and the type of cases to which the procedure would apply in secondary legislation. Also, the regulations and rules would be laid before Parliament, which would allow us greater flexibility to amend the jurisdictions in the light of experience while of course retaining proper parliamentary oversight. That is a judgment about what needs to be on the face of the Bill, and it is how we intend to proceed.

The hon. Member for Birmingham, Yardley asked about proposed new subsection (3AB). The secondary legislation consultation looked at default judgments and how parties might have a way back into proceedings, a point to which my hon. Friend the Member for Hastings and Rye also referred. We are currently considering the responses to that and will announce any changes we might make in due course.

In conclusion, I believe that the type of jurisdiction is best defined in secondary legislation. That would allow us the flexibility to make adjustments in the light of experience if necessary.

Jonathan Djanogly (Conservative, Huntingdon)

I thank the Minister for his clarification on the areas to which the clause is likely to apply. He said that that would be finalised in secondary legislation. I will go away and think about whether items of such importance merit being put on the face of the Bill, rather than going through secondary legislation, and I might well come back to that at a later stage. I take the point made by the hon. Member for Broxtowe that the amendment only loosely makes the point that I intended to make, but I raised it on a probing basis because I thought it was important that we had a debate about the fairness of the procedures whereby someone would effectively give up their rights. I think that the hon. Member for Hastings and Rye and, to an extent, the Minister recognised that. I am pleased that we have had the debate and will think a little further on it. I beg to ask leave to withdraw the amendment.

Clause 5

Pat McFadden (Labour, Wolverhampton South East)

Clause 5 brings us on to the duties and powers of ACAS. At present, ACAS has a duty—I stress that word, “duty”—in certain circumstances to conciliate in cases where no claim has been presented. The effect of the clause will be to change that duty to a power.

It may be helpful to explain the context of this change, which is an important underpinning element of our package of changes to the dispute resolution system. As we have heard throughout this morning, ACAS has a good record of achieving settlement in the period after a claim is made to an employment tribunal but before the process of the tribunal hearing. Currently, it also has a duty to offer conciliation in certain cases that are capable of becoming the subject of an employment tribunal claim where both parties request it, or where one party makes a request and the conciliation officer judges that there is a good prospect of success.

This duty is not new; it has been on the statute book since the 1970s. However, during the 1980s in particular ACAS found that some employers were using this pre-claim conciliation duty simply to obtain an ACAS settlement, as the basis for a legally-binding agreement to underpin severance arrangements that had already been agreed without the involvement of ACAS. Also, the nature of the duty on ACAS to provide conciliation was such that it could lead to ACAS being asked to assist with cases that were never likely to become the subject of an employment tribunal claim, at the taxpayer’s expense. That was not the intention of the duty.

In response, the ACAS council decided that conciliators should interpret the duty strictly in the spirit that was intended, so that the pre-claim conciliation service would be focused on cases that were otherwise more or less certain to become the subject of a tribunal claim. In turn, that had the consequence that ACAS steered away from actively promoting this service, even though it could be valuable. The number of pre-claim conciliations carried out since has been small; it has run at around 1,000 a year in recent years, making up less than 2 per cent. of the conciliation activity of ACAS.

The Government see clear benefits in making the conciliation services of ACAS more widely available in disputes that have not yet reached the stage of a tribunal claim but are likely to do so; making that change is an integral part of these reforms. If a dispute can be resolved before the parties set out their positions in a formal and legal way, that can save considerable time and costs for all concerned. A total of 85 per cent. of respondents to the consultation following the Gibbons review supported the proposal that ACAS should be given additional resources to provide such services.

I have already referred to the additional resources that the Government are making available to ACAS in order to achieve that aim. Those resources are considerable. However, we also think that it is appropriate to give ACAS the power to target properly pre-claim conciliation on those cases where it thinks that it can make the most difference and be the most valuable. That is really the purpose of the clause.

It will then be open to the parties in such cases to decide whether to use the service. Regardless of whether the parties take advantage of this pre-claim conciliation, if the dispute subsequently turns into a tribunal claim they will still have access to ACAS conciliation services in the post-claim period, in the usual way.

In short, we are trying to ensure that ACAS is able to manage effectively the new case load that we wish it to take on, without having to restrict the use of its services unduly and without having to transfer resources from other parts of its operation into an area where it has a duty to respond to every request. So we want more pre-claim conciliation; we have given ACAS more resources to achieve that, and we also want to give ACAS the power to use its discretion to apply those resources where they would be best used. That is the purpose of the clause.

Jonathan Djanogly (Conservative, Huntingdon)

The clause deals with encouraging conciliation. I am happy to say that we agree with the thrust of these proposals. In the other place, there was significant debate on the relative merits of conciliation and mediation. Perhaps that was because many mediators were involved in that debate. I am not a mediator. I have since heard in a roundabout way that ACAS is generally not keen on mediation as a form of dispute resolution. There are certainly some circumstances in which mediation is a better way of moving forward than conciliation. Does the Minister agree with the claim that I have heard that ACAS steers clear of mediation when it should sometimes go in that direction? What is the Government’s attitude to mediation? If he thinks that there are situations where mediation would be more appropriate, how does he intend to promote it?

Pat McFadden (Labour, Wolverhampton South East)

Mediation is a perfectly fair and appropriate part of the armoury. I have not heard under the wire or on the grapevine that ACAS is somehow reluctant to engage in mediation or is hostile to it. The question that has been in ACAS’s mind is the one that I raised in my opening remarks on the clause. It has a duty to carry out pre-claim conciliation, but it has no capacity to target that where it can be most effective. Therefore, that service and duty are not promoted. That situation ends up where we do not want to be, which is with less pre-claim conciliation than we would like to see.

The clause will free up ACAS and, at the same time, give it more resources. In clauses 1 to 7 we are attempting to create a system that provides the maximum chance for disputes to be resolved before they get to the door of the tribunal.

John Hemming (Liberal Democrat, Birmingham, Yardley)

Accepting what the Minister says, there is the facility to encourage people to follow the code of practice and adhere to proposals from conciliation. People must try to reach an agreement and will find themselves in a procedural anomaly if they fail to adhere to that agreement. Therefore, there will be the 25 per cent. penalty. Is that the Government’s intention?

Pat McFadden (Labour, Wolverhampton South East)

The Government’s intention is to encourage people to settle disputes outside the workplace. The code offers certain help in doing that by setting out procedures to be followed. As the introduction to the code says, dealing with these things informally can often help. That is a direction that we want to go in. Of course, we always have to balance that with the right of access to a tribunal. That touches on some of the amendments that we will discuss later.

John Hemming (Liberal Democrat, Birmingham, Yardley)

I made a blunder in my question to the Minister. Would the Government consider saying in the code of conduct that if the conciliator suggests a figure and the employer or employee does not adhere to it, but does not get substantially more or less, there will be a procedural penalty? That is often the case with other judicial proceedings, although there are obviously no cost issues here. However, if the conciliator says that something is worth £10,000 and the employment tribunal then says that it is worth only £9,000, could there be a procedural penalty for the employer or employee?

Pat McFadden (Labour, Wolverhampton South East)

I am not sure whether that would constitute a procedural penalty. I do not want to place myself in the shoes of the tribunal chair. I have no doubt that tribunal chairs will look at such matters, take into account efforts or proposals that have been made at the conciliation phase and consider everything in the round. With this clause, we want to maximise ACAS’s effectiveness by giving it the discretionary power to target its resources on the conciliation cases where it can have most effect with the increased budget that has been provided by the Government.

Clause 6

Pat McFadden (Labour, Wolverhampton South East)

Clause 6 is important because it refers to time limits. The laudable intention of the procedures set out in 2004 was that, in order to focus minds on settling early, there would be time limits on ACAS’s ability to offer its services. In practice, minds are often not concentrated until much closer to the tribunal hearing, by which time ACAS cannot offer its services because it is beyond the time limits. Therefore, the clause will remove the time limits on ACAS’s duty to offer conciliation in cases once they have been presented to the employment tribunal. That will mean that ACAS’s services will be available for both sides right up until the moment the tribunal hearing takes place. We feel that that can be of benefit to both employees and employers.

I never forget that the context for all of this is the significant estimated reduction of up to £170 million in costs for business because of the Bill’s measures that will reform dispute resolution. Part of that is because the Government, rather than having businesses spend all of that money in tribunals, have increased the resources for ACAS and removed the time limits so that it can offer its services in a much greater part of the process.

Since 2004 the duty to conciliate has been subject to time limits of either seven or 13 weeks, depending on the jurisdiction concerned. ACAS retains the discretionary power to provide conciliation after those prescribed periods have expired, but under the clause, those time limits will be removed and ACAS will be able to offer its services in that much-expanded way. Gibbons found that the time limits had not achieved their desired intention and that parties were still realising close to the hearing day that they wished to settle but found that an ACAS conciliation was no longer available. Over 70 per cent. of respondents to the consultation agreed that those restrictions on the availability of ACAS conciliations should be removed. The Government agree, so the clause will repeal the relevant provisions and, like clause 5, is part of our effort to make ACAS even more effective in the future than it has been in the past.

Michael Jabez Foster (Labour, Hastings and Rye)

I certainly would like to support the clause, because the time limits have been an impediment to settlement. The nature of industrial tribunal cases is that people do not concentrate their minds until the last moment, even when orders for directions are made. That is how people work, and perhaps we work like that sometimes. It is certainly the case between employers and employees and their representatives. Frequently the strength of the case is not known until statements have been interchanged as a result of an order for directions or something of that nature. If all the facts are on the table quite late in the proceedings, perhaps ACAS can play its greatest role at that point.

I acknowledge that some costs might be involved in reaching that stage that could have been dealt with earlier if ACAS had had an earlier intervention, so I hope that it will not abandon the possibility of early resolution because it has a longer period in which to do it. ACAS, too, might be subject to the ability to leave things until the last minute, which would be a detriment. If it can go in early and be there late, that would have a great effect.

Jonathan Djanogly (Conservative, Huntingdon)

We welcome the removal of the time limits and the resulting expanded and more adaptable service that ACAS can deliver.

Clause 7

Pat McFadden (Labour, Wolverhampton South East)

I want to say a brief word about this final clause dealing with dispute resolution. It inserts a new provision into the Employment Rights Act 1996 to empower employment tribunals to order employers to compensate workers for the full financial loss they have sustained as a result of unlawful deductions from wages, including failure to pay the national minimum wage, and non-payment of redundancy awards.

For the moment we should put ourselves in the shoes of a worker entitled to the national minimum wage who does not receive it. We all have constituents who may be in that position and we have some understanding of just how difficult it is for someone in that position to make ends meet. The denial, contrary to the law, of perhaps a couple of hundred pounds, is something that we could probably all deal with. It would not make us become overdrawn, but to those on the minimum wage it can make the difference between just getting by or ending up in real trouble. That is what this clause is about.

If someone incurs bank charges for going into overdraft as a result of such an unlawful non-payment, the clause would be available to the tribunal to help compensate for that. I stress that it is as a direct result of the non-payment and it is drawn tightly, but it is recognition that financial loss can result from things like unlawful deductions from wages or non-payment of redundancy awards.

Hugo Swire (Conservative, East Devon)

This all looks very well on paper as we debate it here, but what is the application of this in reality, particularly for casual workers from eastern Europe who are subject to gangmasters? How can this be enforced in that respect?

Pat McFadden (Labour, Wolverhampton South East)

It is enforced by the tribunal. We will discuss migrant workers and the gangmasters, agencies and so on in the following clauses, but if I continue I may be able to enlighten the hon. Gentleman.

Employment tribunals already have powers to extend awards to full financial loss arising out of claims for holiday pay and breach of contract. The clause will allow workers to bring a combined tribunal claim covering both breaches of the law in all these areas, and claims for compensation for financial loss arising from such breaches. At the moment, workers can obtain the compensation in the claims covered by the clause only via a separate claim to the civil courts. The clause will remove the need for claimants to make a separate claim. It is also designed to encourage employers to make the correct payments in the first place.

The payments that an employment tribunal may currently order the employer to pay or repay under these circumstances are limited to the amount arising from the employer’s direct liability. This means that financial losses incurred by a claimant, which are over and above the amount owed but which can be attributed to the non-payment, can be pursued only through the civil courts. Such losses might include, for example, charges incurred if a direct debit has failed or punitive interest on bank accounts that go into the red.

I will refer later to the work of the Government’s vulnerable worker enforcement forum, which I have chaired over the past year. One of the issues raised time and time again in that forum is just how marginal the existence of some workers is. Such workers are dependent on timely and correct payments, so it is absolutely right that financial loss, which occurs as a result of them not receiving those payments can be taken into account by the tribunal.

Lorely Burt (Liberal Democrat, Solihull)

May I welcome you to the chair, Mr. Bercow? May I also congratulate the hon. Gentleman on his well deserved elevation? We welcome the clause, but we have expressed concerns about how financial compensation should be calculated, particularly interest on the total outstanding amount. It is welcome to hear the Minister talk about bank charges incurred as a result of not paying moneys in a timely way, but how feasible will it be for a tribunal to calculate the award? He rightly points out that many of those affected will not have been paid even the national minimum wage. Using bank charges to give fair restitution to employees might not help a considerable number of those affected. My hon. Friend the Member for Brent, East (Sarah Teather) has previously raised the issue of using interest charges. Where it is not possible to get an idea of bank charges—perhaps if the relevant person does not even have a basic bank account—could a similar interest charge payment be used to ensure that there is fair restitution?

Barry Gardiner (Labour, Brent North)

I wish to speak about this because we are all considering the issues of people who might be facing unemployment and redundancy, and the measure is extremely relevant in the current financial situation. It is abhorrent that someone should seek to avoid paying legitimate redundancy payments to any employee. In such a situation, the failure to pay appropriate redundancy moneys can be the sort of financial interruption that leads ultimately to someone defaulting on their mortgage, thus leading to foreclosure and a dramatic effect on their whole life. Even if such a person could get back into employment within three or four months, the non-payment of redundancy moneys might precipitate the loss of a family home. I am delighted that the clause puts in place appropriate compensation for people who have suffered financial loss as a result of such events. It should be welcomed by both sides of the Committee, and I congratulate the Government on introducing it.

Pat McFadden (Labour, Wolverhampton South East)

Let me begin by acknowledging the comments of my hon. Friend the Member for Brent, North. He is absolutely right that the clause is timely—more so than in recent years, given some of the problems that our constituents face.

The hon. Member for Solihull is right that the hon. Member for Brent, East raised the issue of interest on Second Reading. However, if my memory serves me correctly, and it may not, she was talking about minimum wage arrears, which we will deal with shortly, in clause 8. As for the question of how someone would prove that losses are directly related to the non-payment, the provision is not new. It already applies to holiday pay, so tribunals are used to it. We are simply extending it. I should like to point out the key phrase in the clause. Subsections (7)(1) and (2), propose a new subsection (2) in section 24, and a new subsection (5) in section 163, of the Employment Rights Act 1996. The last line of new subsection (5) will read

“to compensate the worker for any financial loss sustained by him which is attributable to the non-payment of the redundancy payment”.

It must be directly attributable and, of course, there must be evidence, but that is for the chairmen of tribunals to judge. We are extending provisions for holiday pay to other matters, in recognition of the fact someone who is unlawfully denied money, and who is dependent on every pound of their wages, could incur other charges through no fault of their own, as well as lose their wage.

Hugo Swire (Conservative, East Devon)

Will there be an appeal system and, if so, how will it work? If someone is made redundant and does not receive the proper compensation to which the tribunal says they are entitled, they could default, for instance, on child support payments. People with a tight budget could have other commitments, such as standing orders, mortgages or whatever, but they could choose not to pay to maintain the Child Support Agency payments. The plaintiff could argue that they were unable to maintain their child support payments because of a reduction in the amount of money to which they were entitled, but they could at the same time maintain payments on white goods or mortgages. Who will adjudicate on whether someone has found a clever way around a commitment or whether it is a genuine entitlement to the plaintiff?

Pat McFadden (Labour, Wolverhampton South East)

The answer to the hon. Gentleman’s second question is that the tribunal chairman or members would adjudicate. On the first question, all tribunals have an appeal mechanism to the Employment Appeal Tribunal. It tends to judge appeals on points of law rather than reconsider a whole case, but there is an appeal process in tribunals.

Barry Gardiner (Labour, Brent North)

Does my hon. Friend agree that in relation to the financial loss that has been incurred, the tribunal will look not at what has resulted from the loss—the non-payment of one bill rather than another or the reallocation of funds—but whether there has been a directly attributable financial loss? Therefore, the points made by the hon. Member for East Devon are not relevant to the clause.

Pat McFadden (Labour, Wolverhampton South East)

As I said in response to the hon. Member for Solihull, it is set out clearly in proposed new subsection (5) to the 1996 Act, which clearly refers to

“financial loss sustained by him which is attributable to the non-payment of the redundancy payment”.

I hope that I have clarified the matter.

Clause 8

Pat McFadden (Labour, Wolverhampton South East)

We now come to the provisions that deal with the minimum wage, which are important. We touched on the minimum wage when discussing clause 7, and clause 8 deals with minimum wage arrears.

It might be helpful to the Committee if I set out the difference between how arrears are dealt with now and how we intend to deal with them in future under the provisions in clause 8. Let us consider the case of a mythical minimum wage worker who finds that they have been paid less than the minimum wage over a period of two or three years. As hon. Members will know, the Low Pay Commission recommends the rate of the minimum wage and, since its inception, it has increased year on year. My Sunday Mirror told me a couple of weeks ago that, if there is a change of Government in future, that could change. It said that senior Conservatives have said that the minimum wage will whither on the vine. Ten years on, perhaps that was a revealing insight into Conservative party thinking. It is certainly not how the Government think. Under us, the minimum wage has increased both in line with average earnings and in relation to prices.

Brian Binley (Conservative, Northampton South)

The Minister has made a rather serious allegation. Will he provide us with the details of the people who said that? He says that they were senior Conservatives.

Pat McFadden (Labour, Wolverhampton South East)

I think we began proceedings by saying that written evidence would be put in front of the Committee. If the hon. Gentleman wishes me to furnish him with a copy of the Sunday Mirror, I will be very obliged to do so.

Brian Binley (Conservative, Northampton South)

I am grateful to the Minister. He has now put my mind at rest by saying that it was in the Sunday Mirror. That makes it all clear.

Pat McFadden (Labour, Wolverhampton South East)

I will leave that point.

In practice, the minimum wage has tended to be uprated year on year on the basis of recommendations from the independent Low Pay Commission. Currently, workers who find themselves being underpaid and therefore have minimum wage arrears discover that, when they report that and it is found that they have been underpaid and are entitled to arrears, they receive the minimum wage at the rate that was in operation at the time of the underpayment. In other words, they get their back pay, but lose out on the upratings that have taken place in the meantime. Such underpayments serve as inadvertent and unintentional loans from employees to employers. The clause will change that.

The Low Pay Commission has expressed concerns on this matter over the years. It expressed particular concerns in its 2007 report. We consulted on whether arrears could be calculated in a fair way, to take account of the depreciation in value of those arrears as a result of the uprating of the national minimum wage. The overwhelming majority of respondents agreed with the aim of making arrears fairer for workers in that way. The majority of those who expressed an opinion were in favour of calculating arrears by reference to the current rate of the minimum wage.

At this point I tread carefully, Mr. Bercow. I will attempt to take the Committee through the equation on page 6 of the Bill under clause 8. As hon. Members will see, the equation is A over R1, multiplied by R2. A is the amount of money calculated to have been underpaid to the worker, and R1 is the rate of the minimum wage at the time of the underpayment. For example, if the underpayment happened last year and the worker was underpaid for one hour, the £5.52 that was earned would be divided by the rate at which the minimum wage was paid, which was £5.52 per hour. That calculation reaches a time of precisely one hour. R2 is the current rate of the minimum wage. The formula takes an amount that somebody has been paid at the minimum wage and turns it into an amount of time in hours, based on the rate of the minimum wage at that time. In order to ensure that the fair arrears apply, that time is multiplied by the rate of the minimum wage at the time the incident is reported or found out. In the case of our mythical worker who was underpaid by £5.52 last year, they would then receive £5.73 as the fair arrears. That is the rate of the minimum wage since it was uprated.

The new method of calculating arrears is much fairer. Despite my poor teaching skills it is relatively simple, in that the concept changes an amount of money into an amount of time and multiplies that by the current rate of the minimum wage. It secures a measure of justice for workers who, as we agreed in discussion of clause 7, are often living at the margin and certainly cannot afford to lose out by giving what are, in effect, interest-free loans to their employers.

Michael Jabez Foster (Labour, Hastings and Rye)

Will it be the point at which the claim was submitted, at which the judgment was awarded or at which an agreement was reached that will determine the rate used? That is important, because there could have been a change in the rate. In the unlikely event that the commission should decide on a reduction in the minimum wage—or in the even less likely event that the Tories should get in and reduce it, or do something of that order—what would be the safeguard that the formula would never result in a lesser sum? Theoretically, at least, the formula could result in that outcome.

Pat McFadden (Labour, Wolverhampton South East)

The rate that would apply would be the one in force at the time the judgment is given. My hon. Friend is right: sometimes these things can take time to come to fruition. He asked what would happen if the minimum wage were to fall. There will come a point in the next couple of years when the voters can take that into account. They have seen what was written in the Sunday Mirror—there is a record to look at—and that may be part of their decision. The provisions ensure that if the minimum wage were to fall, employers could not argue that they should pay back arrears at the lower current rate. Clause 8 provides that the current rate is used if it is higher than the rate that was in force when the underpayment was made.

John Hemming (Liberal Democrat, Birmingham, Yardley)

The formula is a relatively complicated sledgehammer to crack an important nut, but the nut needs to be cracked. On the definition of the pay reference period, would a claim over two or three years during which there were several historic minimum wage rates require a number of claims? If we follow the statute verbatim, whatever that may be, mutatis mutandis, one may be forced to use only one historic rate, but several historic rates would need to be taken into account to get the right answer. Does the statute, when modified, achieve that?

Pat McFadden (Labour, Wolverhampton South East)

No, I do not think that separate claims would be required if someone were underpaid over three or four years. As I said, in the equation on page 6, R1 is the rate at the time they were underpaid. So if someone was underpaid for 10 hours’ work three years ago and then for another 10 hours’ work two years ago, each incident would be converted into a proportion of time, and all of it would be multiplied by the current minimum wage rate. Separate claims are not needed for each year. Simplicity is important. One of the advantages of the minimum wage is that it is clear and simple to understand.

That brings me to the point made by the hon. Member for Solihull about interest. It was argued when we were consulting on fair arrears that perhaps interest should be charged on top of the calculation that I have set out. However, if we were to do that, workers would be required to complete self-assessment returns for tax due on the additional element of arrears, or interest. It is not sensible to put minimum wage workers in the position of having to fill in a tax return for what would be relatively small sums of interest when we can deal with the heart of the problem through a simple, fair arrears calculation. This is a highly legitimate issue to raise, and it has been of concern to the Low Pay Commission. Through clause 8 we will ensure fair arrears for people who are underpaid the minimum wage.

There has been a great deal of discussion this morning about various clauses. This clause will be an important measure of justice for some of the lowest paid people in the country, and I commend it to the Committee.

Clause 10

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 15, in clause 10, page 13, line 30, after ‘them’, insert

‘if copying facilities are not available at that place’.

We are still dealing with the national minimum wage and the parts of it that deal with compliance. Let me say first that, despite whatever appeared in the Sunday Mirror, the position of the Conservative party is that given our support for the national minimum wage, to the extent that people want to break the law and not pay it, we are concerned for the rights of the employees and also for the rights of those employers who are not breaking the law and who are put at a competitive disadvantage as a result.

Our concerns about clause 5 and also about clause 11 fall into two different categories. First, we are concerned whether the provisions are proportionate in cases where civil liberties would be reduced as a result of them. Secondly, we have a more practical issue: we need to look slightly further to examine whether they will actually work and improve the current failings in the system. The second set of concerns is probably more suited to a stand part debate on clause 11, so we will come back to it then. The amendment, which is a probing amendment, is more closely related to the first category of concerns. It aims to limit the right for compliance officers to remove documents to those situations where it is the only practical way for them to continue their investigation.

The rule of law in this country maintains that we are innocent until proven guilty. To that end, compliance officers should not be able to infringe the rights of employers to run their business unmolested by Government agencies unless it is absolutely necessary. Given the expansion of technology in offices in the last decade and the availability of photocopiers, should officers not be encouraged, where practical, to take copies of relevant documents rather that removing originals in a way that might disrupt the running of the business? That is the nub of the amendment.

There was discussion in the other place of the need for these powers to ensure full and effective enforcement of the national minimum wage regulations. However, I must confess to having some scepticism about that assertion. I would have thought that the copying of documents should be the starting point and original documents should only be removed from offices if all other avenues have failed.

Given the possible significant disruptive effect of these powers, I would be grateful if the Minister could provide us with some figures for the number of occasions when the lack of copying facilities has prevented an enforcement action. It is important that we weigh the right of the business to operate unmolested by the state against the need for effective enforcement.

Barry Gardiner (Labour, Brent North)

I see the point of the hon. Gentleman’s remarks. Clearly, however, one could then get into a situation in which the officers go in to copy documents, if that is possible, but when they ask for use of the photocopier, there is obstruction on the part of the employer, who says, “No, I’m sorry, you’re not going to use my photocopier,” or, “I’m going to charge you £1.20 a copy,” or whatever.

All that such an amendment would do is put in place another obstacle that would become a point of dispute between the officers and the employers. I thought that the whole thrust of what the Committee wanted to do was to simplify things and get certainty. In that sense, it is much better that the powers should be as they currently appear in the Bill.

Jonathan Djanogly (Conservative, Huntingdon)

I understand the hon. Gentleman’s point, but it is not in tune with the reality. In the past, I have been involved in advising companies on the outcome of Office of Fair Trading raids, for instance, and know that the impact of removing documents, even if at an investigatory stage when no charges have been made, can be devastating to a company’s business. I am not claiming that there will not be situations in which that will not be the correct way to go ahead. He mentioned the example of companies making it difficult to get access to the photocopier. If the company was making it difficult, the documents should be taken away, but my concern in that regard is that the starting point is that there should be as little disruption as possible. I am not sure that the clause, as drafted, would ensure that that is the case. We could improve the drafting.

Barry Gardiner (Labour, Brent North)

Does the hon. Gentleman accept that what he has just said is not what his amendment says? His amendment would simply insert

“if copying facilities are not available at that place”.

They might be available at the place, but they might be charged for at an exorbitant rate. Officers might be refused access to those copying facilities. What his amendment proposes is not the reasonable point of discussion that he has made.

Jonathan Djanogly (Conservative, Huntingdon)

I accept the hon. Gentleman’s assertion that the drafting is not all that it could be, which is probably why I announced it to be a probing amendment. I am making a point of principle, because I think that this could be like using a sledge-hammer to crack a nut.

Nick Palmer (Labour, Broxtowe)

Does the hon. Gentleman accept that the clause does not stipulate that officers are compelled to remove documents? If copies are instantly made available at no cost, it is quite possible that they could accept those.

Jonathan Djanogly (Conservative, Huntingdon)

I accept that, but the reality is that if the enforcing officers are given the powers, they will often use them. It is incumbent on us, as legislators, to ensure that we minimise the disruption.

John Hemming (Liberal Democrat, Birmingham, Yardley)

Although we share the concerns of the hon. Member for Brent, North about the drafting of the amendment, we want the Bill to reflect the principle that people operating on behalf of the state have the powers to do only what is necessary, rather than allowing them to take any documents from anywhere. The principle is a good one, but the drafting needs a bit of work.

Brian Binley (Conservative, Northampton South)

May I refer to the reality of the situation when the inspector calls? Hon. Members do not need me to remind them just how many inspectors can call on small businesses—VAT inspectors, those looking at health and safety at work and a number of others spring to mind. In many instances, they create in small businesses a feeling of fear, and certainly great apprehension. We need to be very careful about the power with which we endow inspectors, specifically with regard to businesses run by members of our ethnic communities. Often they are not fully versed in the English language and have a sizable fear, brought with them from the culture of their countries, of inspectors who call. That needs to be taken into account much more in this respect.

The wording of the clause is imperfect. There is a vagary about the term “copy records”, about which the Minister might like to reassure us. I know that the term

“records must be returned as soon as reasonably practicable”

is a legal phrase, but it is as lose a legal phrase as one can get. The Minister and I both know that sometimes the arm of bureaucracy is used to instil fear and apprehension. That concerns me enormously.

John Bercow (Conservative, Buckingham)

Order. What concerns the hon. Gentleman is naturally a concern to many people, but I gently say to him that the sentiments he is expressing relate to the clause and therefore potentially, if there is to be one, to the clause stand part debate. Sadly, his comments do not relate to the amendment. On that basis, I feel confident that he is about to draw his remarks to a close.

Brian Binley (Conservative, Northampton South)

You are absolutely right, Mr. Bercow, to bring me to the matter that I really want to talk about, which is the amendment itself, but you will appreciate that I had to create the colour first.

The truth of the matter is that we should do everything possible to ensure that inspectors do not remove documents that small business men might need to work on once the apprehension is planted in their minds that they could well face a bureaucratic—indeed, legal—problem. The return of those documents as soon as is reasonably practicable leaves open a problematic issue that we need to attend to with more certainty.

I support the amendment because if it is practically possible to copy documents, it should be right and proper to do so. However, equally, I want the Minister to take account—I will refer to this matter in the stand part debate—of the looseness of the wording in that respect. For those reasons, I support the amendment.

Pat McFadden (Labour, Wolverhampton South East)

Given what you have just said, Mr. Bercow, I am wary of setting out any context for my response. However, the context is important because we are not dealing with a new law; we are dealing with something that has been in place for 10 years and has become a familiar part of the labour market. Clauses 9 to 12 all relate to stronger enforcement of the minimum wage and context is important because we have 10 years of experience of how it operates. Most employers are perfectly willing to pay the minimum wage and treat their workers completely fairly, and when we discuss the policing and rules around those who do not, it is important to acknowledge that.

The hon. Member for Northampton, South referred to when the inspector calls. Sometimes minimum wage enforcement is criticised from the different direction of the inspector not calling enough—people do say that. It is important to make it clear to the Committee that the inspectors work in two ways. One way is in direct response to reports of non-payment of the minimum wage. That would be investigated and inspectors may visit a premises and so on. The other way they work is proactively on what we call risk-based inspection. We know that that is more likely to take place in certain sectors than others and that certain employers might have a track record in other areas. In a world of finite resources, we target the resources we have as well as we can.

On the amendment, of course, given that most employers are decent people, it will not be necessary to take records away. The current powers of the officers, who enforce the minimum wage by requiring the employer to produce records for inspection and copying them on the employer’s premises, are sufficient in the vast majority of cases. However, if an employer does not agree to the removal of such records, officers do not have the right to remove them to make copies. I agree with my hon. Friend the Member for Brent, North that the problem with the amendment is that it makes the question about the existence of the photocopying facilities the key point, when it is not. The key point is the co-operation of the employer.

Mary Creagh (Labour, Wakefield)

Does my hon. Friend agree that in most companies that operate any sort of payroll facility, however basic, it will most likely be done, and should be done, through a computerised system in the interests of good record keeping? In the event of copies being removed from premises, the employer is very likely to have some form of copy or record available on a computer.

Pat McFadden (Labour, Wolverhampton South East)

My hon. Friend is right. Let us remember that the penalty regime, which was dealt with in clause 9, has increased for employers. A non-compliant employer who is underpaying will know that they are liable for an earlier and bigger penalty than under the current rules. The co-operation of the employer is key, not the existence of photocopying facilities, because it is quite possible for those to exist, but for the employer to say, “Well, we have it, but you can’t use it.” In those circumstances, we would have delays and so on.

The hon. Gentleman, who is a very decent and honourable man, quite rightly raised the point about proportionality. The powers in clause 10 would be used only in that small minority of cases where enforcement officers cannot complete the review on the employer’s premises and where the employer refuses to allow them to remove the records.

Brian Binley (Conservative, Northampton South)

I thank the Minister for his remarks, and of course I understand much of what he is saying. However, will he comment on the line in the clause about how records should be returned

“as soon as reasonably practicable”?

I know that that is rightly part of the stand part debate, but will he comment on that, if the Chairman allows him to? Timing is important.

John Bercow (Conservative, Buckingham)

Order. The Minister will have every opportunity to comment in the clause stand part debate, which might follow.

Pat McFadden (Labour, Wolverhampton South East)

I shall obey the Chairman’s wise guidance and perhaps return to that point during the debate on the clause.

I do not feel that amendment No. 15 would deal with the issue of the co-operation of the employer. One of the things raised with us time and time again is that we are dealing here with vulnerable workers who very often are fearful of reporting. We are also dealing with a system where—we will discuss this in later clauses—currently, without the clauses that we are about to discuss, prosecution is often dependent on the willingness of a vulnerable and often fearful worker to testify in person. The provisions are all about enabling enforcement without always being dependent on such a worker coming forward. The examination of the records, particularly in the context of whether an employer is being obstructive, is a necessary part of that process, which is why I do not agree with the amendment—I am afraid—and hope that the hon. Gentleman will withdraw it.

Jonathan Djanogly (Conservative, Huntingdon)

The Minister just said that we are dealing with vulnerable workers. In some clauses, that is the case, but not in clause 10, which deals with authorities raiding what might be vulnerable companies. That is the issue with which we are dealing. We have raised our concerns about the fact that in some situations the authorities might not give adequate thought to the needs of the ongoing business of the company from which they are taking documents, probably in some kind of raid. I have heard the Minister try to explain why that is necessary, and I accept that the wording of the amendment is not perfect, which is why I shall not press it to a vote now. However, we will reconsider that point, and in the stand part debate I shall address related circumstances.

Mary Creagh (Labour, Wakefield)

The hon. Gentleman said that he advised companies on dealing with the consequences of DTI raids. Presumably he would have talked to them about their risk management. Did he ever come across any companies that only had a single copy of their records? If so, would he have advised them of the risk they were taking in the event of a fire, flood or some such accident where those records got lost?

Jonathan Djanogly (Conservative, Huntingdon)

First, the answer to your question is probably yes.

John Bercow (Conservative, Buckingham)

Order. I did not ask any question.

Jonathan Djanogly (Conservative, Huntingdon)

The answer to the hon. Lady’s question is probably yes. The largest companies often do not keep multiple copies of their records. More importantly, it is the smaller companies who probably would not be able to afford legal advice or would not even think of going for legal advice in relation to what they should have in the event of authorities raiding them. Those smaller companies are the companies that are most likely to be negatively affected by these provisions. Small companies often do not have the resources to take multiple copies of documents. They are surviving hand to mouth and perhaps may do their paperwork every quarter when they have to do their VAT return or whatever. That is the reality of small businesses. We still maintain that, as drafted, the clause could be a sledgehammer to crack a nut.

Pat McFadden (Labour, Wolverhampton South East)

I do not want to prolong this any more than is necessary, but I want to take issue with the hon. Gentleman’s comment at the opening of his remarks that the clause was not dealing with a situation involving vulnerable workers. It most certainly is. We may have a situation, as sometimes we do, where vulnerable workers are fearful of reporting the non-payment of the minimum wage and prosecutions that would otherwise take place cannot take place because we have not given the inspectors the necessary powers to enforce the law. That most certainly involves vulnerable workers. In all the clauses relating to the minimum wage we are most certainly dealing with some of the most vulnerable workers in the country.

Jonathan Djanogly (Conservative, Huntingdon)

I do not accept that. I am not arguing against enforcement. In fact, I am going to argue later that enforcement should be improved. I am not arguing even that raids should not happen where they are appropriate. I am simply saying that the clause as drafted does not give enough leeway for the reality of the circumstances that may exist for companies that are wholly innocent at the time they are raided. The downside of that could be very significant. We have covered the point. We will look at this again. On that basis, I beg to ask leave to withdraw the amendment.

Clause 11

Pat McFadden (Labour, Wolverhampton South East)

I just want to draw the Committee’s attention to one or two points in this clause. It relates to the mechanism by which criminal offences under the National Minimum wage Act 1998 can be tried. Criminal offences already exist under that Act so this does not create new criminal offences, but it relates to the overall strengthening of the penalty regime which we have just heard that the Conservative party supports. The overwhelming majority of cases of non-compliance with the minimum wage have been dealt with under the civil law. That will continue to be the case under the new regime proposed in the Bill.

The national minimum wage is enforced under current arrangements by Her Majesty’s Revenue and Customs. As I said, that is initiated either by a complaint from workers or through risk assessment, including targeted enforcement at low paying sectors. An HMRC enforcement officer will visit the employer, interview the employer and the workers, check the employer’s national minimum wage records and so on. The vast majority of cases are resolved with the employer repaying arrears to workers who have been underpaid, which we have discussed. It is only in cases in which Her Majesty’s Revenue and Customs cannot achieve payment of arrears to workers that the issue and enforcement notice requiring the employer to repay the arrears takes effect. Let me give the Committee some figures. In 2007-08, HMRC investigated 4,500 cases. It found non-compliance in 1,649 cases. Of those, 96 per cent. were settled without the need to issue an enforcement notice and HMRC had to resort to the formal mechanism of issuing notices in only a small number of cases.

Clause 9 changes the enforcement notice process. Following recommendations from the Low Pay Commission, we also want to make changes in other areas, too. I want to talk about the criminal sanctions that are affected by the changes that we propose in clause 11. The National Minimum Wage Act provides for a number of criminal offences—deliberately paying below the minimum wage, failing to keep minimum wage records or keeping false records and obstructing enforcement officers. Currently, such offences can be tried only in a magistrates court in which the maximum fine is £5,000. Criminal conduct by employers is the exception rather than the rule.

As well as considering how we need to strengthen the enforcement regime with the penalties under the civil law, we also considered whether the sanctions for the criminal offences were sufficient. We concluded that in order to ensure a balanced spectrum of enforcement, the potential fine available to a criminal court when sentencing for an offence should be greater than the maximum penalty that can be imposed by notice of underpayment. Secondly, HMRC’s investigative powers, which we believe are necessary and are proposed in clause 12, could not be used if the offences remained triable only as summary offences in the magistrates courts. The clause is important on its own and in relation to clause 12.

Jonathan Djanogly (Conservative, Huntingdon)

We only have a few minutes, but I will make a start. There are some important principles in relation to this clause. My main issue is to address whether these provisions dealing with the level of penalty and mode of trial are going to fulfil their objective of improving payment of the national minimum wage. The underpayment of the national minimum wage is poor practice. It has a negative impact on both employers and compliant companies, with the former being underpaid and the latter being undercut. Further, those businesses that are undercut are often small local businesses which bear the resulting burden of unfair competition heavily. For this reason, we welcome the Government’s proposal to address the issue of enforcement of the minimum wage, which comes on the back of recommendations of the Low Pay Commission’s report. However, I have recently had the opportunity to review that report and I was surprised to read the figures that it recorded for enforcement actions taken by HMRC. In the period of 2006-07, it identified some 1,523 cases of non-compliance but issued only 71 enforcement notices and two penalty notices. The total value of underpayments was identified at some £3 million, with the average arrears per worker being £214, as against a figure of only £130 for the previous year.

The Committee is no doubt aware that under the National Minimum Wage Act, provision is made for criminal prosecution under six offences that relate to the payment of the minimum wage, the maximum penalty for which is £5,000. Those were not used for nine years until 2007 when two prosecutions were successfully made. One of them, a director of a day nursery, was fined £2,500 and ordered to pay costs of £500 for the offence of obstruction under section 31(5)(a) of the Act. More recently, there have been two further prosecutions, most notably, the case of a Sheffield butcher’s shop, which was fined £800 plus costs and ordered to pay more than £11,000 in compensation to two previous employees. The payment of that fine was due by 1 October. I would be interested to hear from the Minister whether it has been paid. My point is that we must not wonder why we are being asked to give HMRC more powers when those that it currently has are being used so sparsely.

John Bercow (Conservative, Buckingham)

Order. My understanding is that the room will be locked so that hon. Members can safely leave their papers here if they so wish.

Brian Binley (Conservative, Northampton South)

On a point of order, Mr. Caton. We were told that it would be absolutely safe to leave our notes and papers here in the room during the intermission. That has turned out not to be the case. I wanted to put that on the record because we cannot be told one thing and then find that our papers have disappeared.

Martin Caton (Labour, Gower)

I understand that that has happened. We shall try to prevent it from ever happening again. Things are in hand to recover any papers that have gone missing. I call Mr. Jonathan Djanogly.

Jonathan Djanogly (Conservative, Huntingdon)

I am pleased that I took my papers with me to have a little look at them over lunch; otherwise, matters may have been rather difficult.

Why are we being asked to give Her Majesty’s Revenue and Customs more powers when those that it has have been used so sparsely, or is the Minister implying that the Government miscalculated so badly when they drafted the National Minimum Wage Act 1998? Furthermore, while I may be persuaded of the merits of proceedings in the Crown court where an unlimited fine is appropriate for large-scale and malicious acts of non-compliance, I am not so easily convinced that it has any real application in the usual course of enforcement. Can the hon. Gentleman enlighten us and explain what proportion of current cases would be prosecuted under the new proposed criminal powers and say how many would remain civil? Furthermore, to date in how many cases—successful or not—has HMRC applied for the maximum fine of £5,000? I fear that the Government are trying to hand a howitzer to HMRC, when it has shown itself loth to use even a pop gun.

I sympathise with the Government’s attempt to empower HMRC and give it the ability to prosecute larger scale offenders, as so concisely set out by Lord Jones, the Minister in the other place, who said:

“We do not believe that the sentencing powers available to magistrates would be suitable in the most serious and exceptional cases where employers refuse or contrive not to pay the national minimum wage and do not co-operate with a compliance officer’s investigations.”—[Official Report, House of Lords, 13 March 2008; Vol. 699, c. GC258.]

However, the Government need to show that such a problem actually exists. I am concerned about supporting the clause on the basis of only perceived exceptional circumstances for which there is scant, if any, evidence.

If the Minister can answer the questions that I am about to ask him, I might find myself more able to support the clause. First, how many exceptional cases have occurred, and how many are being investigated? Secondly, how would we prevent HMRC from becoming overly zealous in its pursuit of actions in the Crown court at the expense of the taxpayer? Thirdly, if such gross and serial underpayment is being perpetrated, why has HMRC not heard of it and begun an investigation with a view to nipping it in the bud before it reaches a stage that requires such large-scale, legal involvement? If the Minister can provide me with answers to those questions, he will go a long way towards easing my concerns.

Mary Creagh (Labour, Wakefield)

It is a pleasure to serve under your chairmanship, Mr. Caton. I congratulate the Minister on his elevation to the Privy Council.

I shall speak briefly about the new powers contained under clause 11. It is important that we empower our officials to have the full range of penalties available to them. We talked earlier about the exceptional nature of the circumstances, but in Yorkshire and Humberside—the region covered by my constituency of Wakefield—372 investigations took place last year and there were 158 non-compliant employers. That is a serious issue for my constituents in Wakefield and for the 140,000 people claiming the minimum wage throughout the area.

I will give an example of the sort of people that we are talking about. My friend Joseph Marshall told me about his son who, before the introduction of the minimum wage, was earning £2.25 an hour as a landscape gardener. He earned £18 a day, and was so tired when he came home because he had worked an extra couple of hours that he would fall asleep while eating his dinner. It was one of the happiest days in that family’s life when, in 2001, he got a job as a security guard earning £4.10 an hour. Obviously his wages have gone up since.

We are talking about vulnerable workers. The hon. Member for Huntingdon has commented on whether those workers are vulnerable or not, but people who work so hard that they fall asleep during their evening meal and rejoice at earning the princely sum of £4 an hour are the poorest people and most vulnerable workers in the country.

When employers decide not to pay the minimum wage, it is a crime like any other. It is a white collar crime, but it takes money from extremely poor and vulnerable people. Businesses that avoid paying VAT are prosecuted to the full extent of the law because they take money from Her Majesty’s Government. I do not see why there should not be similar penalties for companies that fail to give their workers the wages that are due. The clause and the provisions in clause 8 mean that for employers, choosing not to pay the minimum wage is not a zero penalty option. I know that my constituents in Wakefield will welcome the measure.

Lorely Burt (Liberal Democrat, Solihull)

I have every sympathy with and am totally in agreement with the points that the hon. Lady makes. She talks about a number of companies that were found not to have been paying the minimum wage. Does she know how many were prosecuted and fined out of the, I think, 174?

Mary Creagh (Labour, Wakefield)

It was 158 companies across the region, and one of the difficulties is that I have not been able to drill down and see how many that affected in Wakefield. We must also look at the number of people affected. Each of those companies will employ between 10 and 100 workers. That is the size of company involved, as larger companies will have the policies and procedures in place. That probably represents about 1,500 people across Yorkshire and Humberside, and it could have been more. Perhaps I could ask the Minister for a breakdown on the basis of our constituencies, and it would also be useful to know the numbers of people who have been affected. If he could get his officials to place copies of that information in the Library, that would greatly assist us in scrutinising the Bill and in making the case for these further powers to our constituents.

Lorely Burt (Liberal Democrat, Solihull)

I agree with the hon. Member for Huntingdon on the importance of enforcement once the failure of an employer to achieve the national minimum wage is discovered. I have crossed swords with the Minister on a number of occasions about this, but the chance of an employer being inspected for non-enforcement of the national minimum wage is, statistically, about once every 200 years. The Minister rightly says that we should go after companies if we have evidence that they might be flouting the law. However, what concerns me, as the hon. Member for Huntingdon has said, is why those companies are not properly prosecuted. It is certainty of detection that will make employers comply with the legislation, rather than the size of the fines. If companies are not seen to be punished, all the good intentions in the clause, which I completely agree with, will not come to anything because employers will feel that they can flout them with impunity.

Brian Binley (Conservative, Northampton South)

Mr. Caton, it is a pleasure to sit under your control yet again.

I am becoming ever more concerned about the numbers that we are throwing about. We can do damage in that respect; we need to be sure that we are talking factually. Let me declare an interest. I am the non-executive chairman of a company employing 140 people, which I started in 1989. In my experience, everybody that I know is most diligent about paying above the minimum wage, because over recent years, in most areas of the country, it has been hard to get labour at the minimum wage. We need to take that fact into account.

Mary Creagh (Labour, Wakefield)

I know the hon. Gentleman’s business—we have mutual friends—but that is set up in the south-east of England, where there is almost a full-employment economy. That is certainly not so in other areas of country and in other countries—in Scotland and Wales—in rural areas and in certain cities in the north, north-east and north-west. Does he agree?

Brian Binley (Conservative, Northampton South)

It might be helpful if I told the hon. Lady that we have a site in Wakefield employing some 20 people. I am delighted to tell her that we find it just as difficult to get good labour in Wakefield as we do in other parts of the country. Wakefield is a good place to employ people. I have knowledge of other areas. [Interruption.] I would be delighted if she visited.

I am concerned about the numbers that are being thrown about. We ought to be a bit careful until we get the actual figures, because to talk about companies with 10 to 100 employees suggests that we are talking about sizeable companies. Although there is some difficulty, none of us wishes in any sense to not pay the minimum wage as a minimum. However, in my experience, those companies employing 100 people that are not paying the minimum wage would be important ones. We need to talk about the facts—I am sure that the Minister would agree with that point. We ought to be careful until we have those facts.

Pat McFadden (Labour, Wolverhampton South East)

I echo the comments of other Committee members in welcoming you to the Chair, Mr. Caton. We look forward to serving under your chairmanship this afternoon.

We are in danger of conflating two different things in this debate: the penalty regime as it has operated up till now and the penalty regime as it is changed by the Bill. That is an important difference.

I gave some figures in my opening remarks on the clause, which I shall mention again to help Committee members. In 2007-08, Her Majesty’s Revenue and Customs, which is responsible for enforcing the minimum wage, investigated 4,524 cases; it found non-compliance in 1,649 cases, of which 96 per cent. were settled without an enforcement notice being issued. That happened under the current, unreformed system of enforcement. HMRC issued enforcement notices to 59 employers and 25 penalty notices for failure to comply with an enforcement notice. I will mention prosecutions in a moment. It is important to set those figures out, because they illustrate that, in the system as it has operated until now, enforcement notices and penalties exist in the process, but they come at the end of the enforcement activity. That is what the Bill changes.

Our thinking behind how enforcement operates has evolved during the course of the minimum wage. This was a major change to the labour market. We took a decision in the early years of the minimum wage to operate with a fairly light touch on enforcement. That was a major change, but the point that I have made several times during our deliberations is that it has been in place for 10 years. Non-payment now is somewhat different from non-payment in the first year or two, when people could argue that the system was new, that they were ignorant of the necessity to abide by it and so on.

We have changed the enforcement regime over time, and the Bill represents a major change. The figures that I gave about the number of companies investigated, penalty notices issued and so on will be changed fundamentally. Clause 9 states that a penalty will now be automatic for non-payment of the minimum wage. Instead of being given at the end of the process, the penalty will be given at the beginning.

Barry Gardiner (Labour, Brent North)

May I express my pleasure at seeing you in the Chair, Mr. Caton? I have served under your chairmanship many times and have always enjoyed it.

Does the Minister agree that the current system has provided almost a perverse incentive to the less scrupulous employer to take what is in effect an extended loan from their work force by underpaying them? The only thing that such employers suffered was having to pay the minimum wage after being notified that they were in breach. By contrast, the regime that we are looking forward to will apply a penalty much earlier, acting as a positive discouragement to that bad practice.

Pat McFadden (Labour, Wolverhampton South East)

My hon. Friend is absolutely right. Employers who do not pay the minimum wage know that if they are discovered—if HMRC comes along and says, “You’re not paying the minimum wage,”—all they will have do, in all likelihood, is pay the arrears. The figures that I gave show that relatively few penalties are issued, because the penalty comes at the end of the process. The point made by the hon. Member for Huntingdon, which was that we should look at the system as it has operated until now and make a judgment that we may not need the new powers, does not really hold, because the Bill will change the system.

Jonathan Djanogly (Conservative, Huntingdon)

I take the Minister’s point that the system is changing, and we have accepted the rationale for the change, but he needs to make the case why the mode of trial must now involve the Crown court. I do not think that he has yet made that case.

Pat McFadden (Labour, Wolverhampton South East)

Well, I have not finished speaking yet. I shall come to that.

The hon. Gentleman also asked about prosecutions, numbers and so on. In 2006, discussions were held between HMRC and the Department of Trade and Industry, the predecessor of the Department for Business, Enterprise and Regulatory Reform, on the idea that, instead of the system of penalty notices, we should prosecute people. There have been five prosecutions. The fines involved ranged from £500 to £3,500. I note that one organisation involved was called Rascals, a day nursery prosecuted some time ago for non-payment of the minimum wage. I make no comment on that.

Mary Creagh (Labour, Wakefield)

I am sorry to interrupt the Minister, but something occurred to me while he was speaking. Is not the difficulty of enforcing minimum wage legislation the fact that things tend to be done quietly, secretly and in quite a close way? That does not empower us as consumers to make choices about which companies we go to, good or bad.

For example, if I were choosing which nursery to send my child to, I would certainly not choose Rascals day nursery, not least because children are priceless and I would not want somebody who was being paid less than £5 an hour looking after the most precious thing in my life, my young baby. The same applies in relation to hairdressers, the security industry and the hospitality industry.

When I am choosing which restaurant to go to for a curry, in the same way as I choose fair trade goods, where possible, in the supermarket, I want to know that that curry is being made by people who have decent labour standards, are getting holidays and are not being taken for a ride. There are a lot of benefits to such matters being dealt with in a criminal court, particularly the fact that they will then become public knowledge. The grapevine will be a powerful deterrent, so that people will choose not to go to a particular firm and so that they will not be exploited.

Pat McFadden (Labour, Wolverhampton South East)

My hon. Friend makes a strong point. The thing about prosecution in the court is that it is a public event that is on the record.

Jonathan Djanogly (Conservative, Huntingdon)

It is worth spending a bit of time on that because it is important. The point that the hon. Member for Wakefield makes is a fair one, but those five particular cases would have been public knowledge anyway because they were prosecuted, I presume, in the magistrates court, so it is not a question whether such cases become public or not. Given the facts that we have at the moment, the question is whether it is justifiable that we also have the ability to prosecute in the Crown court. As yet, I see no evidence that we need that power, but I am open to persuasion.

Pat McFadden (Labour, Wolverhampton South East)

I referred to the fact that there have been five prosecutions, but 17 cases have been identified by HMRC as ones where it would have liked to attempt to take a case to prosecution, but was unable to do so because of individuals’ reluctance to testify. That relates to our argument in respect of this clause, the next clause and the previous one in relation to HMRC’s powers to take evidence.

I caution against judging how the future system will work absent the changes that we are making in the Bill. Those changes will give HMRC more powers to take evidence and, as I have said before in our debates, make it less reliant on the testimony of often reluctant and sometimes fearful witnesses.

We can overcomplicate the issue. We are not creating new criminal offences here; there are already criminal offences under the minimum wage legislation. The maximum fine for those, in a magistrates court, is £5,000. The clause will enable HMRC prosecutors, in only the most extreme cases of determined violation of the law, to make a judgment that the offence is so serious that a fine of £5,000 will not be sufficient deterrent to the company or punishment that meets the crime. In those circumstances, we want to give those prosecutors the option of trial in the Crown court, where the fine is potentially unlimited, although I do not pretend that that will be the norm or that it will occur in a large number of cases.

The hon. Member for Solihull is right that she and I have exchanged figures and points on the question of inspection by rote a number of times. We do not believe that inspection by rote is the most efficient way to do this; we try to concentrate on cases where people report non-payment and sectors of high risk. There are some 1.8 million employers in the UK. As I said, in the last year, we found non-compliance in 1,650, but targeted inspection and enforcement represent better use of what are inevitably limited resources than simply going round companies by rote with no regard to the evidence of under-payment.

Hugo Swire (Conservative, East Devon)

Will the Minister inform the Committee of the size of some of those companies that have been fined? Cannot the law be more flexible and proportional on the matter? It seems to me that a serial offender such as a large multinational company should be fined proportionally more if it is serially abusing the minimum wage, whereas it would be disproportionate to fine a smaller company a similar amount for erring once or twice.

Why cannot flexibility be introduced to the scheme? A fine is a fine, and a punishment a punishment, but we do not want to over-prescribe against small offenders and make them reduce their work force to meet such fines.

Pat McFadden (Labour, Wolverhampton South East)

The size of the companies involved in prosecutions so far has varied from small firms to a local authority, which employed thousands of people. On the hon. Gentleman’s point about fines damaging small companies, all businesses can ensure that they do not incur any extra costs as a result of the Bill’s introduction by abiding by the law and paying the minimum wage. That is the point we are trying to make.

Brian Binley (Conservative, Northampton South)

Nobody objects to proper measures being taken against people who wilfully break the law—that is not the issue of debate—but I would find it helpful if the Minister gave me a couple of examples from the Revenue in which sizeable companies that employ large numbers of people wilfully broke the law in that way, and also provided a case for going to Crown court. That would help us to recognise whether there is a situation that we need to deal with.

Until I have that information, I shall find this matter difficult. The Minister might say that I should have discovered the information previously, which is a reasonably fair point, but he might help me here.

Pat McFadden (Labour, Wolverhampton South East)

I am glad that the hon. Gentleman has spoken again, because he has reminded me to thank him for paying tribute to the Government’s strong economic record, which has made it difficult for his firm to recruit staff because employment has grown so much. His comments about effective enforcement being in the interests of good business are right. The CBI has said:

“Effective enforcement of the NMW is crucial to ensure its continuing legitimacy and support amongst both employers and workers. CBI members therefore support the government’s decision to re-examine the enforcement regime for NMW to ensure a level playing field for employers as well as to ensure that all workers benefit from their rights under the 1998 National Minimum Wage Act”.

I am sure that we all agree with that sentiment.

The hon. Gentleman asked about the size of the employers involved. As I have said, small employers and a local authority are among those that have been prosecuted so far. The size of employer varies, and the clause allows prosecutors to judge whether the severity of the offence is such that they should opt for trial at the Crown court, which can levy a fine of more than £5,000.

Barry Gardiner (Labour, Brent North)

Does the Minister agree that if one were to combine the comments of the hon. Members for Northampton, South and for East Devon, who said that it is reasonable to consider making larger companies pay greater fines, one would have a response to the hon. Member for Huntingdon? A case such as the one to which the Minister alluded—that of a large local authority—is precisely the sort in which the fine that might be paid would rightly exceed the penalties that could be imposed by magistrates, thus providing the reason for going to Crown court that the hon. Member for Northampton, South requests.

Pat McFadden (Labour, Wolverhampton South East)

It depends through which end of the telescope one looks. The first question that we should ask is about not the size of the employer, although that is a legitimate factor, but the severity of the offence. If a large employer with many hundreds, or thousands, of employees makes a mistake, there is a new penalty regime and we should not lose sight of the fact that the vast majority will be dealt with under that reformed penalty regime, which is civil, not criminal. That will be so for large and small employers.

The clause gives prosecutors the power to opt for trial in a higher court, and it should be seen in relation to clause 12, which provides increased powers on documentation and so on relating to trial by indictment in the higher court. To some extent, the two go together.

Jonathan Djanogly (Conservative, Huntingdon)

The Minister has gone half way to answering my queries, and I understand his point that the system is changing and that that is partly the reason for the lack of criminal prosecutions to date, although I do not believe that any hon. Member would say that the existing policy has been successful, which is presumably why we are changing it. I have still not seen proof that Crown court prosecutions will be required. The Minister is saying that they may be required, and on the basis of what “may” be required, we would certainly have 42 days’ detention without trial, and a draconian criminal system. We will give the matter further thought, and perhaps return to it on Report.

Clause 12

Jonathan Djanogly (Conservative, Huntingdon)

I beg to move amendment No. 16, in clause 12, page 14, line 9, leave out subsection (1).

This amendment has a similar rationale as that of amendment No. 15 in that it concerns the balance between enforcement powers and the freedoms of business. As the Minister said, it is tied in with clause 11. This is a probing amendment to seek clarification of the clause and its proposed effect.

HMRC has extensive powers as a result of the amalgamation of the Inland Revenue and Her Majesty’s Customs and Excise, not least those under the Police and Criminal Evidence Act 1984, which were provided for HMRC’s fiscal functions by the Finance Act 2007. I agree with my noble Friend Baroness Wilcox and reiterate her concern that there must be a real need for the massive extension of investigative powers proposed in the clause. More concerning perhaps is that it could represent the proverbial thin end of the wedge. I would not wish to hamper HMRC’s good work in enforcing the national minimum wage, but I am hesitant about freely handing it a hammer to smash a nut when it may have a perfect adequate nutcracker in its box of tools.

I would be interested to hear from the Minister what tools the clause provides to HMRC that it does not already possess, and in what circumstances it may feel it necessary to use them. For example, in what circumstance do the Government envisage HMRC using the investigative powers? Will they be used for all offences, or just for indictable offences? My understanding is that the clause is permissible only on the basis that the offence is now indictable, but will the Minister confirm that that is so?

Given the discussion in the other place about the scarcity of indictable offences, which the Minister confirmed during our previous debate on clause 11 stand part, we must ask whether the powers are necessary given the resulting reduction in civil liberties? In other words, the clause 12 power is dependent on clause 11, which has not been proved to be necessary. I am as yet unconvinced that HMRC has found itself in a situation in which those new proposed powers were necessary, and I should be grateful if the Minister would point me to specific evidence of that need.

Pat McFadden (Labour, Wolverhampton South East)

It is important that HMRC has the power effectively to investigate allegations that offences have been committed under the National Minimum Wage Act 1998, and particularly the more serious offences of systematically refusing or locally neglecting to pay the national minimum wage. As I have said several times on this group of clauses, we should remember that we have to deal with the fact that vulnerable workers are often reluctant to come forward.

The intention behind the clause, and the reason why we oppose the amendment suggested by the hon. Gentleman is that HMRC investigators are currently hampered in obtaining evidence of offences to the requisite standard, as we do not have the necessary powers on search and, to a lesser degree, the production of evidence. Investigators therefore have to rely on worker testimony to prosecute employers.

I have referred before to the Government’s vulnerable workers forum, which has been meeting over the past year. It has heard from representatives of business, trade unions, citizens advice, enforcement agencies and so on. Time and again we have heard of workers being reluctant to come forward because they fear that they could lose their jobs, albeit low-paid jobs, often leaving them with a marginal existence.

Based on investigations, we know that securing worker testimony can be difficult, as workers can face intimidation and threats, and sometimes the loss of employment. HMRC has been forced to abandon some potential prosecutions as a result of such factors. The hon. Gentleman asked how many. Between 2005 and 2007, HMRC identified 17 cases in which the lack of powers of the kind outlined in clause 12 hindered its investigations of non-payment of the minimum wage.

We cannot have it both ways. We cannot say that the enforcement effort to date has resulted in too few prosecutions and that it is not tough enough, and then say that we are not convinced that we need tougher powers. None the less, HMRC is able to identify cases in which, if it had had those powers, it believes that it could have gone further.

Hugo Swire (Conservative, East Devon)

Would the Minister tell the Committee, for interest, the geographical spread of those prosecutions?

Pat McFadden (Labour, Wolverhampton South East)

I do not have that information, but I shall look into the matter to see whether I can enlighten the hon. Gentleman later in the Committee’s deliberations.

Clause 12 remedies the situation by enabling HMRC to use the investigation powers available to it under part II of the Police and Criminal Evidence Act 1984, as it can with other HMRC responsibilities. Those powers would enable HMRC to require the production of, or to search premises for, documents of substantial evidential value to an investigation. I emphasise that those powers will be granted to HMRC only if the courts agree that documents of substantial evidential value are likely to be obtained and that such an order is necessary and proportionate in the circumstances.

The hon. Member for Huntingdon asked whether the powers will be usable only for offences triable by indictment. I am happy to confirm that that is correct. As I said earlier, clause 11 relates to clause 12, and vice versa. The investigative powers in clause 12 could not be used if the national minimum wage offences were triable only as summary offences, as the Police and Criminal Evidence Act powers are available only for indictable offences. The powers in clause 12 would enable prosecutions for the most serious offences in the 1998 Act.

Jonathan Djanogly (Conservative, Huntingdon)

Is the Minister therefore convinced that the measure will not encourage more indictable offences, because people will want to use the new investigatory powers?

Pat McFadden (Labour, Wolverhampton South East)

The measure gives HMRC the power in circumstances in which, at the moment, they are frustrated, because they have to rely on witnesses who are reluctant to come forward. Obviously, the powers will be available only for indictable offences—I have made no secret of that and have said it several times. To some extent clauses 11 and 12 go together. Clause 12 will enable prosecutions for the more serious offences under the National Minimum Wage Act 1998, such as refusing or wilfully neglecting to pay the national minimum wage, without having to rely on vulnerable and reluctant witnesses.

The clauses that we are discussing are all about looking at minimum wage enforcement and asking, “Have we got the balance right?” Our view is that the system needs strengthening. I stress again what I told the hon. Member for Northampton, South: I believe that most employers are decent and that they want to abide by their obligations, but I also agree with the CBI that a strong enforcement system is in the interests of both good business and vulnerable workers. When developing the proposals in the Bill, our view was that, although the minimum wage has been a great success, the time is right to toughen up the enforcement regime. Clauses 10, 11 and 12 do that. I therefore do not agree with the amendment.

Jonathan Djanogly (Conservative, Huntingdon)

Let me first thank the Minister for his comprehensive response to my points. We are moving from a lax system—everyone agrees on that—that does not work especially well, to a tougher regime. No one has a problem with moving to a tougher or better regime, but the question is whether we have retained proportionality, because of the level to which we are increasing the powers. I have voiced the Opposition’s doubts on that.

It could be that because the powers of investigation in the clause are triggered only by an indictable offence, we move from a lax regime that brings no prosecutions, to an extremely harsh regime, rather than to a system that brings more prosecutions for non-indictable offences, say. The enforcement authorities would have to go for an indictable offence to get the investigatory powers, and I can understand why businesses are concerned that we are going from one end of the spectrum to the other.

That is as far as I wish to take the matter at this stage, but on the basis that we are going to think further about the measure, I beg to ask leave to withdraw the amendment.

Lorely Burt (Liberal Democrat, Solihull)

I did not take part in the last discussion but I listened carefully to all the points that were made. The Liberal Democrats are minded to support the Government on the clause. It is important to give HMRC the teeth to complete prosecutions when appropriate. At the same time, we understand that HMRC might become over zealous. However, given its record, I would suggest that that is not likely. We are therefore happy to support the Government.

Brian Binley (Conservative, Northampton South)

I can understand what the Minister has said on the clause, but to help with the policing of this measure and the minimum wage, the understanding of business is an important part of the process and allows the Inland Revenue and other bodies to do their job correctly. I would want the Inland Revenue to take that into account in its codes of practice, because the last thing we want—I am sure that the Minister would agree—is an over-zealous approach to the issue, which would do harm to the general involvement of business. We do not want business becoming protective in this respect. I simply ask the Minister to seek an understanding of that by the powers that be, who are given increased powers by the clause.

Pat McFadden (Labour, Wolverhampton South East)

Part of the reason for the measures is the criticism that the system is not zealous enough. We are told to be more zealous but asked not to be too zealous. Our overall judgment is that the system needs strengthening. HMRC has done a good job in recovering arrears for workers—it recovers £3 million to £4 million a year—and we should not lose sight of that in a discussion on strengthening the system.

However, we would not be introducing the measures if we thought that the current system was perfect. We do want to strengthen it. I am sure that HMRC will have heard what the hon. Gentleman said about taking care in applying the proposals. I repeat what I said: in future, the vast majority of cases of non-payment will be dealt with by a civil process and the application of the new penalty procedure. I do not believe that that will involve any more than a small minority of cases.

I also think that signals from Parliament are important, and the signal that we are sending by legislating along these lines is that this is not a voluntary option but the law of the land. We are strengthening the penalty regime, and it will be possible to take the worst and most persistent offenders not just to the magistrates court but to the Crown court, where the potential fine is unlimited.

Clause 13

Pat McFadden (Labour, Wolverhampton South East)

We take a slightly different direction in this clause, in the sense that its purpose is the avoidance of doubt. It clarifies a question about entitlement that was posed to us.

The combined cadet force—the Sea Cadet Corps, the Army Cadet Force and the Air Training Corps—are voluntary, community-based organisations. I am sure that we are all familiar with them and the valuable and important work that they do throughout the country. They currently engage about 130,000 young people in a range of challenging and positive activities, using military themes based on the culture and ethos of the armed forces. Cadet force adult volunteers, as used in the Bill, is the generic term adopted by the Ministry of Defence to refer to any adult who volunteers to assist alongside military personnel in the delivery of the MOD-sponsored cadet force programme. There are currently 26,000 such volunteers.

Clause 13 makes it clear that those adult volunteers do not qualify for the minimum wage. It does not affect those who perform work for the cadet forces in the course of Crown employment, nor does it affect any entitlement that cadet force adult volunteers may have to the minimum wage outside their activities as a cadet force adult volunteer.

The volunteers have a long tradition of offering their time and effort for free. However, along with the high level of responsibility that they take on in their quasi-military role, there are features of being a cadet force adult volunteer that might lead to their being deemed workers, and therefore deemed as coming under the remit of the minimum wage. For example, some of them undergo special security clearance, which includes signing the Official Secrets Act; some are trained to allow safe access to Ministry of Defence facilities and equipment, including firearms, often to the same level as members of the armed forces; and some sign personal declarations or agreements to undertake certain standards of behaviour on joining that could be misinterpreted as a form of employment contract. Although there is no legal entitlement to remuneration, cadet force adult volunteers may be remunerated for attendance at weekend training and summer camps.

Those features are unique to the cadet forces. They stem from their alignment with the armed forces and enable their activities to take place in a military environment and to integrate with the military chain of command. Under the next clause, we will discuss the Bill as it affects volunteering more widely, but for the purposes of this clause, we wanted to make it clear, lest there was any doubt, that cadet force adult volunteers are doing a very valuable job, but it is a voluntary job that does not bring them into entitlement to the minimum wage.

Stephen Crabb (Conservative, Preseli Pembrokeshire)

Has the Minister or his Department received any representations from individuals who serve as cadet force adult volunteers saying that they should be entitled to the minimum wage?

Pat McFadden (Labour, Wolverhampton South East)

We consulted on that. I do not think that there were a huge number of representations, but the MOD and the Government more widely were keen to clarify the situation. The exemption will allow the volunteers to continue to operate as successfully as they do now, while removing any doubt that exists about the minimum wage. It will enable them to continue to deliver what are very valuable and often exciting programmes of challenging developmental activity to young people throughout the country.

Jonathan Djanogly (Conservative, Huntingdon)

We support the clause. We are aware of the grave concerns that these voluntary and very valuable cadet organisations have and their wish for the clause to be included. We recognise the huge benefit that these voluntary leaders provide and the contribution that they make to their communities and young people in this country.

Clause 14

Pat McFadden (Labour, Wolverhampton South East)

This clause, too, deals with voluntary workers, but in a much wider sense. It broadens the scope of expenses that can be reimbursed to voluntary workers without triggering eligibility for the minimum wage. Again, I am sure that members of the Committee will be appreciative of the hugely valuable work done by voluntary workers in all our constituencies. The clause will mean that as well as being able to reimburse expenses incurred in the performance of duties, which has been the situation until now, organisations will be able to reimburse expenses that were incurred to enable the voluntary worker to perform the duties. That will enable expenses such as those for child care and travel to and from voluntary work to be reimbursed should an organisation wish to do that.

We received many representations about the issue from voluntary organisations throughout the country. We do not seek to place barriers in the way of voluntary work. In fact, we want to encourage, foster and promote it, and the clause helps us with that. Voluntary workers are a very special class of workers, both in the legal sense and in a more general sense. They can be employed only by charities, voluntary organisations, associated fundraising bodies or statutory bodies. The exemption for voluntary workers means that they can continue to give their time for free without being eligible for the minimum wage. In turn, it also means that voluntary organisations can continue to benefit from their dedication and pay them appropriate expenses, enabling them to carry out the voluntary work.

We are determined to ensure that voluntary workers are not out of pocket as a result of their good work, but at the same time it is important to ensure that low-paid jobs beneath the minimum wage do not emerge in the voluntary sector under cover of voluntary work. However, neither can we allow spurious expenses to be claimed as benefits. The clause strikes the right balance and minimises those risks.

Hugo Swire (Conservative, East Devon)

On a drafting point, or perhaps something more than that, proposed new subsection (1A)(a) refers clearly to expenses

“incurred in order to enable the worker to perform his duties”,

but proposed new subsection (1A)(c) refers to those that “are not accommodation expenses”. That suggests that at no stage would a voluntary worker need overnight accommodation. I do not understand why one contradicts the other.

Pat McFadden (Labour, Wolverhampton South East)

The hon. Gentleman is right that accommodation expenses are not covered by the clause, as is set out quite clearly.

Jonathan Djanogly (Conservative, Huntingdon)

Is it not the case that if the accommodation is inside the building, the rules are different? I thought that there was a difference between outside and internal accommodation.

Pat McFadden (Labour, Wolverhampton South East)

That is not quite the difference. The difference is that section 44 of the National Minimum Wage Act 1998 allows a voluntary organisation to provide accommodation by paying rent directly to a landlord, but it does not pay the rental costs to the voluntary worker.

Reimbursed expenses must have been incurred, or reasonably estimated to have been incurred, so reimbursement is always for an outlay. The expenses must legitimately enable voluntary workers to perform their duties, and they must not be reimbursed for expenses unrelated to their work. Furthermore, those expenses must be reasonably incurred so that the voluntary worker does not benefit from claiming excessive expenses. We will issue guidance to voluntary organisations and volunteers accompanying the changes in the Bill.

We received a significant number of representations on that issue and the clause was amended in the other place along the lines in front of us. I believe that that gives significant reassurance to voluntary organisations and workers that they can receive the appropriate expenses to enable them to carry out their valuable work without getting tied up with the minimum wage.

Jonathan Djanogly (Conservative, Huntingdon)

We support the clause and have seen significant evidence that voluntary workers have been left out of pocket because of their inability to claim expenses. I would imagine that some likely volunteers have been unable to volunteer because of that. We hope therefore that the clause will encourage more people to volunteer.

Lorely Burt (Liberal Democrat, Solihull)

We also support the clause and acknowledge the tremendous work that volunteers do. It never ceases to amaze me just how willing people are to give of their time, and it is right that they should be reimbursed for any expenses that they incur. On the accommodation aspect of the clause, will the Minister explain the difference between someone finding accommodation and then having to get the charity to pay the bill, and paying the bill themselves and then submitting it to the charity? That could present some logistical difficulties.

Pat McFadden (Labour, Wolverhampton South East)

Accommodation was discussed in another place, too. If an employer or landlord is providing free accommodation in return for the work, the worker would be entitled to the minimum wage. That is the case regardless of whether the worker is employed elsewhere. We took the view that to make provision otherwise would enable employers to provide accommodation in return for work rather than pay the worker a wage. All the way through the Bill, we are trying to strike a balance between appropriately supporting voluntary work and workers without sanctioning a sub-minimum wage and a series of jobs emerging around the voluntary sector. That will apply to child care, travel expenses and accommodation, where the rent is paid directly to a landlord. In the round, we think that that is the right balance to have struck.

Clause 15

Pat McFadden (Labour, Wolverhampton South East)

I will try not to repeat the fairly lengthy discussion that we had about offences that are triable either way, in the magistrates or Crown court. However, clause 15 covers very similar ground, except that in this case we are talking about offences under the Employment Agencies Act 1973.

As hon. Members will be aware, employment agencies and agency work have been rising higher up the political agenda in recent years. The Committee will be pleased to hear that I do not want to take us down the highways and byways of European directives. However, at the same time as we are strengthening enforcement of the minimum wage, we also want to strengthen enforcement of the regulations surrounding agency work.

At present, under section 5(2) of the 1973 Act any breach of the regulations governing employment agencies is a criminal offence, triable as a summary offence in a magistrates court. The experience of the Employment Agency Standards Inspectorate, which is the part of the Department for Business, Enterprise and Regulatory Reform that polices this area of labour market providers, has been that, although the present approach has proved effective for the great majority of agencies that are reputable and wish to comply with the regulations, it has not been as effective as it might be for the very few agencies that seek to avoid their legal responsibilities and refuse to comply with the legislation. This issue was taken up by Conservative Front Benchers, who asked me several times why there were not more prosecutions under the agency standards rules. That lack of prosecutions has been part of the problem in this area.

There are difficulties related to the limitations of prosecution for summary offences in terms of adequacy of penalties and limitations of prosecution powers. The most significant problem occurs when an individual who has been prohibited from running an agency, because of their unsuitability on account of misconduct, ignores a ban on running an agency. The maximum penalty for breach of a prohibition order is a fine of £5,000, as we discussed before when we talked about other offences that are triable in a magistrates court. Such a fine may not be an effective deterrent where the agency is highly profitable.

We are talking about quite specific circumstances here, where someone can be prohibited from running an agency but they ignore that prohibition because the activity is so profitable and the maximum fine is £5,000. In addition, the penalties may not be adequate for cases where agencies illegally charge, or seek to charge, for work-finding services, or where they fail to pay agency workers for the work that they have done.

At the moment, under the current system there is no scope for the Employment Agency Standards Inspectorate to prosecute for “attempting” to commit offences under the legislation. Again, this means that the inspectorate needs to identify witnesses who are prepared to give evidence against the agency.

I am not someone who says that all agency work is at the dark end of the economy; I do not believe that. I believe that many agencies give very valuable flexibility and, often, highly paid work to the agency workers whom they employ or find work for. Nevertheless, in some instances we are dealing with dark corners of the labour market, and we know that in those circumstances, relying on witnesses to come forward and give evidence can be difficult. Therefore, we are again seeking here to strengthen the enforcement regime. That can be difficult because some people feel—particularly when they may need to have repeated contact with an agency to get work time after time on short placements—that if they give evidence, the work from that agency may dry up. Of course, we also often deal with migrant workers who are travelling to and from their home countries.

By making the most serious offences under the 1973 Act triable on indictment or summarily in magistrates courts, the maximum penalty will be increased to an unlimited fine when the case is tried on indictment under clause 15. The clause is important in ensuring that there are appropriate parities for the most serious cases of offences under the 1973 Act, for the reasons that I have set out.

Some circumstances are quite specific to agency work, such as issues to do with the vulnerability of workers and the powers of the standards inspectorate to prohibit people from running agencies. The question of whether such prohibitions can be properly enforced when contravening them can be highly profitable gives rise to some issues. In those circumstances, we have to ask ourselves whether a £5,000 fine is high enough. The judgment that the Government have made is that it is not. In those circumstances, we seek the power to try such offences in a higher court.

Jonathan Djanogly (Conservative, Huntingdon)

On the question of the clause and the 1973 Act, we feel that the extension of criminal chargeability is valid and justifiable in these circumstances. We have seen instances where the existing powers are not adequate, just as we said that we saw that the powers were not adequate when discussing clause 11. To that extent, we have not tabled any amendments and will support the clause.

Clause 16

Pat McFadden (Labour, Wolverhampton South East)

The clause relates not so much to how offences are tried as to the wider powers of the agency standards inspectors. It will increase those powers by enabling inspectors to require a person carrying on an agency to provide financial records and documents. It will enable them to require records, documents and information at a time and place that they may specify. It enables them to require banks to provide financial information regarding agencies. I will say more about that in a moment. The clause will also enable inspectors to remove documents from an agency in order to take copies. We dealt with some of those issues this morning when discussing minimum wage enforcement.

Again, there are currently problems in assessing the scale of abuses, which compromises the effectiveness of enforcement against rogue and disreputable agencies. There is an absence of powers to obtain financial records from agencies. For example, an agency worker may come forward and say that the regulations are being contravened. They might not be getting paid properly, or they might be being levied with illegal deductions. Even if that case is proved, it can be difficult for the Employment Agency Standards Inspectorate to know whether it is an isolated case or whether such practices are rife in the company.

When investigating serious complaints, the inspectorate needs to find out the scale of the illegal practices being carried out by agencies brought to their attention. If illegal payments have been made or illegal deductions taken, it must know whether those are isolated cases or whether they are widespread. Given the reluctance of agency workers to come forward, it may be that significant numbers of workers are in the same situation and have not had the courage to report it.

At present, the inspectorate does not have powers to obtain financial information from an agency that does not want to provide that information. An inspector does have the power to request any person present on the premises to inform him of the whereabouts of any record or document that is not on the premises and to make arrangements for it to be made available. Frequently, the person on the premises is not the person in charge of the agency. This is a particular difficulty when dealing with a three-party relationship in which the hirer, the agency and the worker are all involved. The person in the hiring company will not necessarily know where those records are. Inspectors have encountered difficulty in obtaining information from agencies where a former member of staff may have removed self-incriminating evidence, or where records are being withheld that may point to another person’s being involved in the running of the agency—again, in cases where there is a prohibition and so on.

So there are a number of circumstances where extra information-gathering powers can help. That is why we believe that the clause will strengthen the powers of the Employment Agency Standards Inspectorate and allow it to look not just at individual cases reported to it but, on the basis of those reports, to find the necessary information to enable it to judge whether they are isolated incidents or a wider practice that requires a wider response.

Jonathan Djanogly (Conservative, Huntingdon)

Yes, we feel that the provisions are justified. It is important to stress that we are dealing with a small number of employment agencies here. The vast majority are excellent employers; in fact they are among the best because of the nature of what they do. However, in circumstances where wrong is being done, the situation could be very bad, so provisions such as this are correct and we will support the clause.