HL Deb 19 March 1986 vol 472 cc1029-38

7.30 p.m.

Lord Rochester rose to ask Her Majesty's Government whether they consider, in the light of statements included in recent company annual reports in accordance with Section 1 of the Employment Act 1982, that companies are doing enough to promote employee involvement.

The noble Lord said: My Lords, your Lordships will recall that Section 1 of the Employment Act 1982 makes it a statutory requirement that every company employing more than 250 people in the United Kingdom should include in its annual report a statement describing the action taken during the year to introduce, maintain or develop arrangements aimed at, first, providing employees systematically with information on matters of concern to them as employees; secondly, consulting employees or their representatives on a regular basis so that the views of employees can be taken into account in making decisions which are likely to affect their interests; thirdly, encouraging the involvement of employees in the company's performance through an employees' share scheme or by some other means; and, fourthly, achieving a common awareness on the part of all employees of the financial and economic factors affecting the performance of the company.

It is rather more than a year ago that in another Unstarred Question I asked Her Majesty's Government what conclusions they had reached in monitoring the action reported to have been taken by companies during the first year of operation of Section 1. Last June, the Department of Employment published a note giving its conclusions. Among other things, it said: A particularly encouraging feature was the diversity of individual practices which was reported by companies … It serves to emphasise that companies are best left to develop individual practices according to their own particular circumstances. A prescriptive approach would only disrupt these many and varied systems which already exist". It added: It is also encouraging that the great majority of the reports included an employee involvement statement, that about a third of these covered action under three of the four sub-headings of Section 1, and that about half were supported by detailed descriptions or examples".

That was one way of looking at it, but less than six months after publication of that departmental note the Parliamentary Under-Secretary at the time, Mr. Peter Bottomley, described the lack of detail in half of the company reports that had been monitored as disappointing. Worse still, in his view, were the results of an analysis by the Institute of Personnel Management of the second year reports appearing as a result of Section 1. I quote from his remarks. He said: The IPM observed a continuing lack of detail in many reports and they concluded that companies are failing to observe the spirit of the law relating to employee involvement. The legislation asks clearly for a statement of action, not policy".

In their own comments on first and second year reports, the IPM considered that the test of the legislation was whether in the second year there was an improvement, particularly among those companies which in the first year had been reluctant to include more than a short general statement. The institute concluded: The answer from the sample survey is clearly 'No'. The results are very disappointing. Over 50 per cent, of the statements are identical to the first year, leading to the conclusion that many companies are meeting this statutory requirement by a standard paragraph to be included unchanged along with the similar requirements on disabled persons.

The verdict of the Institute of Personnel Management was that the shortcomings of Section 1, in practice, cast doubts on its effectiveness as an instrument of change. It feared that by the time the third and fourth year reports emerged, unless there was some major change in the voluntary approach they would have been set in standard paragaphs and largely ignored. It saw the most helpful signs as the increase in employee share schemes and employee reports and thought it was perhaps in that direction that reform lay.

The first question that I should therefore like to ask the Minister is whether the Government agree with this approach to the problem, and, if so, what they are willing to do to encourage particularly the preparation and distribution of reports to employees. In the case of employee share and similar schemes, I gladly acknowledge at this point the steps announced in yesterday's Budget Statement which may be of help. I refer to the Chancellor's so-called personal equity plan, the discussions that are proposed to get an attractive profit-sharing scheme off the ground, and the plan to improve schemes to encourage tax relief on approved employee share schemes. I cannot resist the temptation to remind the House that ideas of this kind have long been advocated by the Liberal Party—they are nonetheless welcome for that—but I suggest that they are not enough.

A year ago, I commended to your Lordships the code of practice and accompanying action guide which was first published jointly by the IPM and the Industrial Participation Association more than two years ago and which since then has twice been revised. I asked at the time whether the Government proposed after consultation with interested parties to place their own imprimatur on that document or to publish their own code, as they had done in the case of closed shop arrangements and picketing.

In reply, the noble Lord, Lord Belstead, said that the Government were not convinced that the code would be made any more effective by doing this. Last May, the then Secretary of State for Employment went a small step further in stating that the Government endorsed the code. However, since the Industrial Participation Association last year estimated that only between 600 and 700 firms are committed to employee involvement to any major extent, I must next ask the noble Lord, Lord Trefgarne, whether the Government are now prepared to become more directly involved in this way, as a means of improving our industrial performance in both the private and public sectors.

Last April, Mr. Tony Baldry, the Conservative Member of Parliament for Banbury, introduced in another place, with all-party support, a Bill to place on the Advisory, Conciliation and Arbitration Service the duty to promote in its advisory capacity the IPA/IPM code, but there was not time in the last parliamentary Session to debate it. I appreciate that ACAS might itself have reservations about exercising such a duty, lest this should be seen as prejudicing its independent status. But I must then ask the Minister the question: in that case, should not the Government, which accepted responsibility for incorporating Section 1 within the Employment Act 1982, now themselves, in their executive capacity, do more actively to promote employee involvement?

There are various other possible ways in which progress might be made. I am on record as having said on a number of occasions that in all organisations employing more than a certain number of people there should be consultative bodies of some kind. An alternative approach now being canvassed widely is that employees should be given statutory rights to receive information and to be consulted within certain defined parameters.

I know very well that the Government have until now insisted that employee involvement must be developed voluntarily. For my part, I have tried hard to develop a consensus in the matter. But I fear that if the Government remain entirely passive they may later come to regret it. Apart altogether from the pressures which continue to come from Europe for further legislation in this field, there are those growing unceasingly within our own society which would in my view be better embraced and channelled into some generally acceptable way rather than that they should eventually explode in forms which employers would greatly deplore.

There is much more that I could say, but my purpose in asking this Question is not so much to express my own thoughts as to provide the Government with the opportunity to give the House their up-to-date views on the matter. Can it be right that in 1986 it is only when people are at work that they may still be denied representation or even information when major decisions affecting their lives are made? I do hope that the Minister will be able to tell us of some further positive action which the Government plan to take in response to that question, for I believe it to be the most basic of all in this field.

7.42 p.m.

Lord McCarthy

My Lords, I should like to begin by welcoming the noble Lord, Lord Trefgarne, who is to reply for the Government, to this debate. This has become an annual debate, I am afraid, between on our side of the House the noble Lord, Lord Rochester, who was responsible for Section 1 of the 1982 Act, and myself, and a series of Ministers on the other side of the House. As the noble Lord said, we have had the noble Lord, Lord Belstead; we had at the beginning of it all the noble Earl, Lord Gowrie; and we have I suppose some hope that, if things go on as they are, next year we may actually have the Secretary of State himself. Meanwhile we welcome the noble Lord, Lord Trefgarne, to the debate, and we hope that he will have something rather more helpful to say than previous speakers.

I want to make four points this evening. First of all, I want to remind the Government of the provisions of Section 1 of the 1982 Act, and how modest they were. As was said at the time, this part of the 1982 legislation was a million miles from Vredeling and light years away from the despised fifth directive. As the noble Lord, Lord Rochester, has said, it provided merely that companies with more than 250 employees would include information in their annual report, not to the workers but to their shareholders, simply telling them what they had done to inform their workers, to consult their workers and to develop their awareness of factors affecting the performance of the company; and also what they had done to encourage employee shareholders.

It was addressed from the directors to the shareholders. It was nothing to do with trade unions; it was nothing to do with collective bargaining; it only had to appear in the annual report. But we hoped that the fact that it went into the annual report would make companies think about what they were doing and perhaps over a period of time improve what they were doing. But it was a very modest scheme, and the Government accepted it during the passage of the Employment Act 1982 as a very modest scheme. There was nothing in it that progressive companies had not been doing for years. That was what we said at the time.

The second thing I want to say—and here, again, I agree with what has been said by the noble Lord, Lord Rochester—is that, nevertheless, all the evidence is that the great majority of companies, contrary to what was said in the first report by the Department of Employment, do not really carry out fully and satisfactorily the modest spirit of Section 1 of the 1982 legislation; and, in a way much more seriously, given the way in which the case for the provision was made in 1982, there is now no further stimulus for change. That is essentially what the Institute of Personnel Management survey says.

In the first year we had a series of studies—the Department of Employment study, as the noble Lord, Lord Rochester, has mentioned; the ACAS study, and the IPM survey. They all showed that the majority were not giving positive encouragement to all four aspects of Section 1 of the 1982 Act, and indeed that only about one-third of the companies passed the IPM tests, modest as they were, on all four aspects. Another one-third were doing nothing, or very little. As the noble Lord, Lord Rochester, has said, the IPM, in its second year survey, reported that the results were very disappointing. It said in its second year survey that one might have wondered: Would there be an improvement"— as a result of the Act— … among those companies reluctant to include more than a short general statement? As the noble Lord, Lord Rochester, said, the answer from the sample survey is clearly, "No".

I think this is an understatement by the ever-polite IPM, which has done excellent work in this field. One sees from its second year survey that only 15 per cent. of the firms involved in the survey report an improvement and that 85 per cent, say that they are in the same position as they were before. They report with the same words, or they report in very similar words, which suggests that they are still in the same position.

More important still, the improvement in so far as there is an improvement is concentrated on those who gave the most satisfactory answers last year. Twenty per cent, of those who passed all four tests last year have improved their position, but only one firm in the lowest category has improved its position. The IPM says on page 5 of its second report: These shortcomings"— the shortcomings in Section 1— … in practice cast doubts on the effectiveness of the Companies Act as a statutory instrument of inducing change and keeping at bay the unwanted EEC legislation"; the legislation that is unwanted by the Government. By the time the third and fourth year reports emerge, unless there is some major change in the voluntary approach, they will have become set in standard paragraphs and largely ignored". I should have thought that this year the spokesman for the Government would come back and tell us that, in the light of the second survey of the IPM, he accepts that this provision of the 1982 Act is not working out as it was intended to do and that it has ceased to have any dynamism in it. I should have thought that the Government would be particularly concerned about this in terms of what they have said in the past about financial participation. The IPM have said that what is required to carry out the provisions is an increase in profit sharing schemes, employee shareholdings, group incentive schemes, pension fund involvement and so on. There is not much to report in the IPM survey in that respect.

That contrasts, I should have thought, with what the Government are now saying about financial participation. The Chancellor said in his Budget—curiously enough, he said it while he was saying what the Government were doing for the unemployed, but never mind: It might make sense to offer some temporary measure of tax relief to the employees concerned to get profit-sharing agreements of the right kind off the ground".— [Official Report, Commons, 18/3/86; col. 172.] Indeed, at one moment the Chancellor seemed to be suggesting that, in order to get profit sharing and financial participation off the ground, the Government might consider consulting the TUC—although naturally he could not bring himself to say the actual words.

Nevertheless, in the Budget the Government are proposing certain minimal improvements to existing legislation governing approved employee share schemes. I would have thought that in that context, and in the context of a Government who have now come out and said that they want to encourage that aspect of employee involvement, we might find a rather more positive approach taken towards Section 1 of the 1982 Act.

We are asking for something more positive than we have had in previous years. We are asking in the first place whether the Government now agree with the Institute of Personnel Management that it is a busted flush of a provision. I am asking in particular whether the Government will now take up the role that we have asked them to take up in previous debates and themselves investigate the extent to which firms are not only making returns but are actually improving their involvement provisions.

We are asking also whether the Government will do more about shareholding schemes and to encourage an increase in such schemes. In conclusion, we ask the Government whether they wish to adopt for yet another year their entirely passive attitude towards Section 1 of the 1982 Act.

7.51 p.m.

The Minister of State for Defence Support (Lord Trefgarne)

My Lords, I have listened with considerable interest to the speeches made by the noble Lords, Lord Rochester and Lord McCarthy, and I am heartened by the general acceptance of the desirability of promoting and advancing better employee involvement practices. We seem to be agreed on where we want to go. We all accept the need for employee involvement—but some of us part company on how we get there. I dare say that it was ever thus.

Just over a year ago the noble Lord, Lord Rochester, as he mentioned, asked a Question about the conclusions we in Government had drawn from the early efforts made by companies to comply with the requirements of Section 1 of the Employment Act 1982. Tonight the Government are asked again if companies are doing enough to promote employee involvement.

We have heard of the studies there have been of companies' compliance with "Section 1", and it has been suggested that the results have not been good. I must say I do not consider their conclusions represent an overwhelming statistical expose of non-compliance. The Institute of Personnel Management's second-year analysis, of which we have heard from both noble Lords, was based on a sample of 162 companies In fact, the largest survey of which I am aware was undertaken by the Department of Employment, covering 750 companies. Its conclusion was: yes, more could be done, but let us not forget the wide variety of employee involvement practices it revealed—a variety and extent which found an echo in other surveys.

But we should not conduct this discussion in the spirit of the two men in the story who argued over a glass of wine. The optimist said, "It's half full", while the pessimist claimed it to be "half empty". We can get ourselves diverted from the real issues in that fashion if we look exclusively at how well company reports are written and how much detail they give—important though those are. Indeed, a company with good practices might write a bad report that fails to do them justice, and vice versa.

There is some reason to believe that many companies which have made only very general statements in the Section 1 reports do have good employee involvement practices which justify their general claim. This point was made in the Government's published survey of the first year Section 1 reports. But whatever our judgment on those points, whether we are swayed by the full reports or the half-empty ones, we are all agreed that more needs to be done. In one sense I could say whatever has been done is never enough—whether we are talking about involving employees more, training our people to be more efficient, or winning our way into the world's markets. The nub of this whole matter is: which way forward is the best way? Do we coerce people or do we carry them with us willingly?

The Government, as your Lordships will know, believe that this legislation provides companies with an opportunity to review their employee involvement practices regularly at board level—and where necessary to improve them. We have always seen this as a long-term process, a constant challenge. This requirement, by bringing the question annually before the company, can remind them of this challenge. But genuine progress has to be worked for over a sustained period. It cannot be conjured into being by legislation—least of all by the prescriptive proposals put forward in Brussels. Those proposals may be more ambitious on paper, but they are defeatist in reality. Imposing a procedure from outside will never be as effective as prompting people to come to grips with those issues for themselves.

In outlining what has been achieved, and pointing out what needs to be done, the evidence does not suggest that we are on the wrong road; rather, it points the way forward. Some companies have already made great strides. Boots, for example, has a comprehensive system for informing and consulting its staff, which includes regular communication meetings and staff councils, backed up by bonus and employee share schemes. ICI—as the noble Lord, Lord Rochester, knows—has long pioneered involvement by its employees and has evolved a structure of consultative committees that meets its particular needs. Its individual recipes for success may not work for others, but they illustrate that, when you get it right, the company and its employees reap real benefits. That is the sort of progress we want to see: not state-imposed theory but good company practice.

Let me set out why we believe that legislation is not the way forward in these matters. First, we believe that successful employee involvement depends above all else on a genuine spirit of co-operation, and not on the coercive power of formal machinery. Co-operation springs from a sense of shared purpose, from the genuine desire of the participants of an undertaking to work together towards a common goal: the success of that enterprise. Co-operation simply is not possible without consent.

Secondly, the benefit of employee involvement cannot be realised in practice unless the particular arrangements suit the circumstances of each individual business. To pick one solution and to try to impose it on the large multinational, the local family firm, or the multishop chain, apart from its inherent impossibility, would constrain the growth of the many and varied practices that firms are already choosing to meet their particular circumstances, and which the Government wish to encourage.

The third reason why we eschew legislation is that the benefits that employee involvement can bring to an enterprise are their own best recommendation. It is as necessary for successful business management as it is to serve the particular interests of the employees. In a competitive world, companies have to make full use of all the resources available in tackling the problems of economic change. A company's major resource is its people: their creativity, their imagination and their energy. One cannot force that out of them—look at the Eastern Bloc countries—but with their consent and agreement one can unleash it, especially when all concerned are aware of the advantages that will ensue.

Fourthly, the Government believe that a compulsory framework would produce a number of harmful effects: investment would no longer be attractive; firms would incur direct costs in changing to, or establishing, the system laid down by legislation; commercially sensitive or confidential information would be at risk; and decision-making would be slowed down; finally, the variety of current practice in the employee involvement field would be lost. These side-effects of legislation would undermine competitiveness and be bad for jobs. You cannot involve employees if you have priced them out of a job.

I think we are all clear by now that the Government will not introduce further legislation and, indeed, will continue to resist efforts from Brussels and elsewhere to impose rigid, prescriptive solutions on everyone, regardless of their circumstances. So what are the Government doing to encourage better employee involvement? First of all, we are always looking to our own practices as an employer to see how we can improve them. My noble friend Lord Belstead, in last year's debate, referred to particular examples of the efforts being made in several government departments, and I am happy to say that many such efforts continue.

For instance, one more recent example is the National Health Service Register, which is part of the Office of Population Censuses and Surveys at Southport. A statement on employee involvement has been agreed and put into operation which will provide staff with the opportunity to influence and be involved in decisions which are likely to affect their interests. Management and staff are represented at a regular series of meetings designed to ensure an efficient two-way flow of communications. A lot of work has gone into this exercise and early indications are that it is proving very successful.

The Government take every opportunity to persuade companies to introduce, maintain and develop employee involvement arrangements appropriate to their individual circumstances: through ministerial speeches at seminars and conferences, through visits and by articles in magazines and journals. We shall continue to do so. The Government actively support the efforts of business, professional and specialist organisations to promote employee involvement. As an example, we have endorsed the code of practice jointly produced by the Industrial Participation Association and Institute of Personnel Management. I am pleased to record that the code's impact and popularity continue unabated.

Another means of genuine involvement is to give employees a financial stake in their company's future wellbeing. When you are in the same boat, you tend to row together. Time may show our achievements in this field to be of crucial importance. Since we came to power in 1979 the number of all-employee share ownership schemes has grown from only 30 to well over 1,000 today—and no sign of a let-up. The Government's privatisation programme has set in train a massive and prolonged boost to wider share ownership. We remain totally committed to giving more employees a financial stake in their future.

In his speech yesterday, my right honourable friend the Chancellor emphasised the advantages of moving to a system in which a significant proportion of employees' remuneration depended directly on the company's profitability per person employed. A move to such a system, he said, might be achieved if employers and employees negotiated profit-sharing agreements, possibly with a measure of tax relief provided by government. To that end, preliminary discussions will be held to see if a workable tax relief scheme is feasible; to be followed, if it is, by a consultative document. This is further evidence of this Government's commitment to giving the workforce the chance to have a greater stake in their company's success. In addition, the personal equity plan and the halving of stamp duty on share transactions will widen the experience of shareholding and create a more favourable climate for management and workforce to pull together for the benefit of all concerned.

I shall now touch on one or two of the points made this evening. The noble Lord, Lord Rochester, wondered whether it was not disappointing that less than half of the companies gave detailed descriptions of their employee involvement practices—referring of course to the monitoring exercise. We should of course have preferred them to give more details, but other evidence suggests that in most cases those companies with only general entries in reports on employee involvement in fact involve their employees successfully.

The noble Lord also referred to his disappointment that the IPM had found no improvement in its second year analysis. It is disappointing that the analysis did not reveal more progress than it did, but we must keep the results in perspective. One problem it underlined was that of companies with well-developed arrangements which had not changed in the reporting year. Does a simple statement that nothing has changed count as a poor report? We must remember that we are not after reports for their own sake, or even change for its own sake, but good arrangements in practice.

The noble Lord, Lord Rochester, also asked about encouraging employee reports to be passed to employees themselves. The Government are not going to hold up one form of employee involvement such as employee reports and say that that is the way to do it. Companies must pursue whatever methods they think are best suited to their circumstances. If employee reports are one such method, then so be it.

Finally, I sometimes think we mislead ourselves if we think of employee involvement as some sort of formal consultation mechanism which we can bring in or out of existence by legislation. Really involving employees in the enterprise of the company is not about formal procedures; it is a constant task of management. And like so many of the tasks facing us in this country, it is not an easy one. But success rarely comes easily, and if we look at the successful concerns, they are usually the ones which properly utilise the full potential of their people at work. That success is its own best advertisement for employee involvement and more than anything else will provide the springboard to wider and better employee involvement practices across industry.

Like so many things in life, employee involvement depends ultimately on the participants—the men and women on the factory floor, on the sales team, and in the Boardroom—and not on the Government. The Government will keep asking the questions, but the answers must come from within industry itself.

Lord McCarthy

My Lords, before the noble Lord sits down, may I put this point? If he says, as I think he did, that the survey of the IPM can be faulted because it is considerably less comprehensive than that which was provided by the DoE in June 1985, will he then give an undertaking that a fuller and equally comprehensive survey will be undertaken by the DoE in the immediate future?

Lord Trefgarne

My Lords, I am not in a position to give the noble Lord the sort of sweeping assurance that he asks for. However, I can assure him that the surveys will be quite up to the mark.

House adjourned at eight minutes past eight o'clock.