Relevant documents: 7th Report from the Constitution Committee and 20th Report from the Delegated Powers Committee. Northern Ireland legislative consent granted. Welsh and Scottish legislative consent sought.
310: After Clause 150, insert the following new Clause—
“Impact on new business entrantsThe Secretary of State must, within 12 months of the day on which this Act is passed and annually thereafter, publish an independent assessment of how this Act affects new business entrants and small start-up enterprises, particularly regarding the impact of increased administrative or financial burdens on market entry and growth.”
My Lords, I shall speak to amendments 310, 311, 312 and 319.
If I may start with Amendment 311, I stress that productivity is vital for growth. The Government’s own impact assessment of the Bill is lacking in many areas, but it correctly identifies productivity as a problem in the UK workforce and reveals the fundamental weakness of their approach. They state quite explicitly:
“there is little quantitative evidence about the knock-on impacts on productivity”,
and conclude:
“On balance, we believe the impact on growth could be positive … but the direct impact would be small in magnitude”.
Most tellingly, they admit that
“the impact on average productivity will be small”.
To paraphrase, the Government seemingly admit that productivity will not be significantly improved, if at all, by this legislation. This raises a fundamental question that goes to the heart of economic policy: how does one achieve high levels of productivity?
High productivity emerges through competition—genuine, unfettered competition—where businesses face lower regulatory burdens, can compete effectively for the best workers and possess the freedom and flexibility to innovate, to adapt and to respond to market signals. Productivity growth stems from technological innovation, capital accumulation and, as we have just heard in the questions on the previous Statement, investment in skills and productivity—skills above all. These improvements occur naturally when markets are allowed to function, when competitive pressures incentivise businesses to innovate or perish and when the price mechanism can operate without distortion.
Competition drives productivity by creating what economists call “creative destruction”—the process whereby inefficient firms are displaced by more productive ones. When businesses have to compete for workers, they invest in training, technology and better working conditions. When they have to compete for customers, they innovate and improve efficiency. When they must compete for capital, they demonstrate their productivity gains to investors and offer competitive returns.
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The costs imposed by this Bill will far outweigh any benefit brought about by the minimum wage increase. While a small number of workers may see modest increases thanks to the minimum wage, many more will miss out on wage increases, as businesses have to manage their increased costs. Moreover, the jobs that might have been created by new businesses entering the market, often with higher productivity and higher wage positions, will simply not exist. I urge the Minister to undertake and commit to conduct a thorough assessment of the impact of this legislation on the issues that I have sought to highlight in this group of amendments. I beg to move.
My Lords, I support this group of amendments in the name of the noble Lords, Lord Sharpe of Epsom and Lord Hunt of Wirral, calling for an impact assessment requiring an independent analysis on different measures. I have added my name to three of them. Amendment 310 asks for an impact assessment on business, new entrants and start-ups, while Amendment 311 asks for a productivity impact reporting, and Amendment 319 asks for a new clause on assessing the impact of the regulatory burden on businesses.
Amendment 310 would require an impact assessment on new business entrants and small start-ups, including the impact of administrative and financial costs. Why do we need this? We know from ONS data that the story of business start-ups from 2016-17 to 2023-24 was one of steady increase, from 664,750 new start-ups in 2016-17 to 800,000 in 2022-23. We know from other data, from an analysis for NatWest bank and the Beauhurst Group, that for the last calendar year 846,000 new businesses were registered, bringing the total to a record high of 6.63 million last year. Just under one-third of that, 248,000, in the first quarter was, sadly, a figure not sustained by the end of the year, with a 25% drop in business formation as the year progressed.
Of course, headline figures should be read with caveats entered. Here are just three. Quite a few new companies do not survive their first or indeed their second year. One tech and computer entrepreneur once told me that you would expect in his sector at least one or two failures until you got to a success; it was almost the necessity to fail that brought success. Difficult circumstances, such as an economic slowdown due to exceptional causes or external shocks, may have an impact on new start-ups taking off. Indeed, some companies will simply be reformations of existing organisations and businesses.
These may be the ordinary reasons why we see start-ups not doing so well, but one common obstacle to getting a new business off the ground or making a success of it is the burden of too much of the wrong—and unnecessary—regulation. The Government and the public will need to know the impact of this measure, after a year or at a period to be agreed between the Government and opposition parties, to see whether the decline in new applicants that we saw at the end of 2024 will continue in the first year of operation and, if so, what steps we may need to take to mitigate this. New businesses are our lifeblood. They help replace the stock of zombie businesses which go out of business and rightly fail in the competitive economy to which my noble friend Lord Hunt alluded.
My Lords, I remind the Committee of my interests in both consultancy and the hospitality industry. I have really come to help the Government on this bit of the Bill, because the problem they have is that very few of those who are working on the Bill run businesses. I have run businesses all my life, except for the time when I was a Minister, and, as I read the Bill, I am very concerned that it has been written by people who have not run businesses. They do not understand the damage that they do to employment and new business. I hope every Minister will admit that to themselves, whether or not they have run businesses and met these problems. Have the civil servants who advise them, or the political advisers from their parties, run businesses and seen these problems for themselves? If the answer is “Not much”, “Not many” or “Not overall”, surely they ought to see whether they have got it right.
Frankly, I do not think they have got it right, but I am very happy to be proved wrong. I do not think they have got it right because I know what has happened in the businesses with which I am associated. I know that we are employing less, because that is the only way we can pay the increased demands on employers. I know that the balances that we have to make now are not to the advantage of staff recruitment. Above all, I know that if I were starting a new business, the temptation not to do so would be very much greater because of the complications that the Bill, and previous actions of the Government, place on us.
That puts me in a position in which I do not think the Bill is, in large measure, a good one. But I am prepared to be proved wrong if, by clear investigation, we look at the results of what happens and take account of it. The problem is that if this Government are going to carry out effectively many of the policies with which I agree—more than I agree with some of the policies on this side of the House—they must prove to the public that they listen and are prepared to look at the facts.
My Lords, I agree with almost everything that my noble friend said. When I was growing up, my father, who was in business, suffered the three-day week, and I understand the impact it had on his business and many like his. I also understand that productivity needs to be improved and increased. We need to look at what is happening across the world to be competitive enough.
I know that the Minister, the noble Lord, Lord Leong, has a business and understands business. If he were sitting on this side of the Chamber, I suspect that he would be arguing in the same vein as we are. It would be right and proper not to shirk away from proper impact assessments and proper comparative assessments of what is happening across the world, because we all want a competitive country where we are leading at the helm. Denying and disagreeing just for the sake of denying and disagreeing does not do this debate any good.
My Lords, unusually, I completely agree with the remarks of the noble Lord, Lord Deben; he and I are both surprised by that. That is not because I am a business owner—that has never been my shtick—but because I am worried about the unintended consequences of the Bill. I too simply want an opportunity to check—and if I am wrong, that is fine.
This group of amendments is very important because it will give the Government a chance to think again, to assess and to reflect. It does not have to be a U-turn; it can straightforwardly be something that is accepted at this point in the Bill that would then mean that those of us who are nervous about the Bill’s consequences can be proved right or wrong.
I am particularly concerned about the impact the Bill will have on productivity, and Amendment 311 is therefore key. I am concerned that the Bill is not doing what it says on the tin and will have a diametrically negative impact on workers’ rights, jobs and wages. I am interested in Amendment 312, which simply asks for real wage impact reporting.
Of course, the big amendment that would cover all the things that have been argued for so far is Amendment 319, which calls for an impact assessment of the regulatory burden of the Bill on businesses. In the past, people who have complained about overregulation have been considered to be on the right of politics—the idea is that those people are so irresponsible that they do not want any regulations and are prepared to take risks. I have never understood it like that at all.
I was therefore delighted to find that I agreed with the Government and the Prime Minister, Keir Starmer, when he made some tub-thumping speeches about the problems of
“the regulators, the blockers and bureaucrats”
stopping investment and growth. He called them an “alliance of naysayers”, which I thought was good, because I have always been worried about this. I am not from the Tory fold, but that goes along with what I thought. I was genuinely excited that the Labour Government were embracing this way of understanding what can get in the way of economic development and growth, which is necessary for workers to have jobs, wages and rights under an industrial policy that we are hearing about today—all the infrastructure things.
My Lords, as somebody who does business from time to time and tries to encourage business, not least through my deputy chairmanship of the Commonwealth Enterprise and Investment Council, which is trying to grow business right across the Commonwealth, it strikes me that the Bill comes at an unfortunate time. Of course, we should always look at regulation, and there will always be an argument about what is over-regulation and what is under-regulation. But at a time when so many jobs are threatened by AI, we should surely be looking at a low regulatory framework. I urge the Government to take this into consideration during any impact assessment.
The Minister knows about business. He is a businessman and has a successful business, and I too suspect that he identifies with many of the points we are raising, although he cannot say it. But it strikes me that, just at a time when people are very fearful about their future and the uncertainty of having a job at all, let alone when they get older, so they can raise a family, have a mortgage and so forth, we should be looking at ways to encourage businesses to employ more people. The noble Lord, Lord Deben, said that he saw every good reason not to employ more people. That is really bad news. If businesses are now saying it is simply not worth the candle, that will contribute to the unemployment that will surely follow as many of these jobs are replaced by AI anyway. So I urge the Government to look at that.
Equally, at a time when many countries around the world, not least in Asia, are spending much more money, time and effort on advanced mathematics and the other things you need nowadays for coding and so forth, we in this country seem to be lowering the standards, particularly in mathematics—dumbing down at a time when we should be raising up. So by all means, let us properly protect our workers, but let us not overregulate to the extent that we do not have any workers to look after or to regulate.
My Lords, I will address Amendments 310, 311, 312 and 319, which collectively seek greater transparency on the economic consequences of this legislation.
Although I am afraid that I take no firm view on the amendments themselves, which were explained in great detail by the noble Lord, Lord Hunt, and spoken to by other noble Lords, who expressed reservations—obviously, there are reservations—I welcome the principle that they reflect: that we must remain vigilant as to how new laws affect businesses, wages and productivity. No one else has said this, but I appreciate that the Government are already undertaking much of this work, and I would welcome an update from the Minister on how that work is progressing and informing policy development.
Amendment 310 raises a valuable and timely question about how new and small businesses might fare under the Bill. As the noble Lord knows, and as I know from a working lifetime as a chartered accountant, these enterprises often lack the resources, legal support and regulatory expertise of larger firms. It is only right that we ask whether the framework we are putting in place enables them to enter the market, grow and succeed on fair terms.
If the Government are serious about delivering long-term economic growth, they must pay close attention to the conditions facing new business entrants and small start-ups. These businesses, as I hope the noble Lord will agree, are not only a vital source of innovation and competition but key to job creation, skills development and regional regeneration. The barriers they face—and there are increasing barriers—whether through opaque processes or disproportionate compliance costs, can limit their contribution to the economy. By reducing unnecessary administrative burdens and ensuring a fair and accessible regulatory environment, we can help unlock their potential.
My Lords, I am grateful to every noble Lord for their contribution, and I have listened intently to each and every one of them. I thank noble Lords for their kind words about my previous business career.
We return to the important issue of impact assessments. I appreciate the continued efforts of the noble Lords, Lord Sharpe and Lord Hunt of Wirral, here. It will be no surprise to your Lordships’ House, given the number of separate debates—I think there have been about eight now—we have had on this topic, that the Government view these amendments as unnecessary. Let me recap. We have already published 27 impact assessments, available on GOV.UK, which have been updated where needed as policy has been added to the Bill during passage.
Academics at Warwick University, Oxford University, MIT and UCL all find a positive relationship between job satisfaction and productivity in their research. For example, Simon Deakin, professor of law at the University of Cambridge, said:
“The consensus on the economic impacts of labour laws is that, far from being harmful to growth, they contribute positively to productivity. Labour laws also help ensure that growth is more inclusive and that gains are distributed more widely across society”.
All this evidence is laid out in our impact assessment, which was developed in consultation with external experts. Business supports the view that this will be good for productivity. In a survey undertaken by the Institute of Public Policy, seven in 10 employers said that strengthened employment rights will boost productivity, compared to just 7% who disagreed, and six in 10 employers thought stronger employment rights would have a positive impact on business profitability, while fewer than two in 10 disagreed.
We have worked hand in hand with businesses, trade unions and civil society to understand the impacts of this Bill—
There is no doubt that people who are happy at work are likely to contribute positively to the workplace. Nobody, I think, is arguing against that and wants miserable workers with no rights. However, what we are trying to explore is not whether people will have job satisfaction but whether they will have jobs. It is about the unintended consequences of the Bill that might mean that people are not employed; or, indeed, that new jobs are not created because productivity will not go up; or that it becomes too risky to employ, for example, young workers, and so on.
With all due respect to Warwick University’s academics—I went there and I know some of the people who wrote that research, and I am sure that they are happy in their workplace—the truth is that if some piece of legislation ended up unintentionally closing down Warwick University, they would not be happy and productivity would not go up. That is what we are concerned with. It is not a theoretical academic argument about how being happy at work makes you work harder—I know that. But if there is no work, then you are not going to be happy, you are not going to do any work and productivity will go down.
I thank the noble Baroness for that contribution. If she can be a bit patient, I have some more positive news for her.
We have worked hand in hand with businesses and trade unions, as I said earlier, to understand the impacts of the Bill on industry and will produce further analysis as required under the Better Regulation Framework. It is worth noting that more doors are opening than closing. In the first quarter of 2025, the UK saw 90,000 businesses created, up 2.8% on last year, while business closures fell by 4.4%. This Government are backing British businesses and British workers, and our Modern Industrial Strategy, published yesterday, is making that real. To give one example, we have boosted the British Business Bank’s capacity to £25.6 billion, unlocking billions for innovative firms, especially SMEs. For the first time, the British Business Bank will be able to take equity in fast-growing tech companies. This has never happened before. That is helping crowd in tens of billions of pounds more in private capital, fuelling growth, creating jobs and driving long-term prosperity. I hope that gives comfort to the noble Lord, Lord Deben.
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So what will this legislation achieve in practice? I regret that it will impose additional regulation, create additional burdens and constrain the very competitive forces that drive productivity improvements. This of course comes on top of the tax rises announced by the Chancellor—measures that undoubtedly constrain business investment and growth. The increase in national insurance contributions is particularly damaging in this context. Higher employer NICs directly squeeze the possibility of productive investment. Investment that would otherwise create jobs in productive areas of the economy will now not take place. Capital that could have been deployed to improve productivity, whether through new technology, training programmes or research and development, will instead have to be diverted to meet higher tax obligations and burdens. This represents a fundamental misunderstanding of how productivity improvements occur. Productivity does not increase through regulatory mandate or government directive; it increases when businesses have the freedom, the incentive and the resources to invest in productivity-enhancing activities.
This brings me to Amendment 319 and what I can only describe as a profound contradiction in government policy. The Government committed just months ago to a 25% cut in the regulatory burden. They reaffirmed this, as we heard, in the published industrial strategy. Yet here we have legislation that introduces what can only be described as a raft of new regulatory burdens. The question that demands an answer is this: how will the Government achieve this 25% reduction in the regulatory burden? How will it be measured? How will the Bill, which manifestly increases regulatory compliance costs, align with that stated target?
I turn to Amendment 310. A truly competitive market must make it simpler, not harder, for new businesses to enter. Yet there is no consideration in the Government’s impact assessment for how this legislation affects barriers to entry. I believe that this represents a profound oversight because, when businesses cannot enter a market because of costs imposed by government regulation, that fundamentally alters the competitive dynamics driving productivity improvements. The economic logic here is straightforward but crucial: when entry barriers are low, existing businesses face constant competitive pressure from potential new entrants. This pressure has to keep them on their toes, forcing them to remain productive, innovative and responsive to consumer needs. They cannot afford to become complacent because they know that more efficient competitors could emerge at any time, hot on their heels and full of competitive energy. But when government policy raises the cost of market entry through complex regulations, compliance burdens or increased operational costs, it can effectively insulate existing businesses from this competitive pressure. The result is predictable: established firms have less incentive to innovate, less pressure to improve productivity and less need to compete aggressively for the best workers.
Turning to Amendment 312, I come to a particularly important point about wage competition. In a competitive market, businesses compete not only for customers but also for workers. When entry barriers are low and competition is fierce, employers must offer competitive wages and working conditions to attract and retain talent. This competitive pressure naturally drives wages upward as businesses bid for the best employees. When regulatory burdens prevent new businesses from entering the market, however, this wage competition diminishes significantly. Existing employers face less pressure to offer competitive wages because workers have fewer alternative employment opportunities. The reduced threat of labour mobility gives established businesses greater power in wage negotiations.
I believe that the costs imposed by this Bill will exacerbate this problem in two distinct ways. First, the direct compliance costs and increase in employer national insurance contributions will pressure businesses to control their wage costs more tightly. Secondly, and perhaps more importantly, these costs will deter new business formation, reducing the competitive pressure that would otherwise drive wages upward. Of course, the Government may want to point to the increase in the minimum wage as evidence of their commitment to higher wages, but that misses the fundamental point about how competitive markets operate in practice. The minimum wage affects only a small proportion of the workforce—those at the very bottom of wage distribution; for the vast majority of workers, wages are determined by market forces and competition between employers for their services.
This Bill, as others which the Labour Government have proposed or enacted since 2024, penalises employers and businesses and introduces a device of damaging politicisation and ideologically driven changes to favour certain vested interest groups over the interests of business, the whole UK economy and the people of this country, who depend on a strong, prosperous and competitive economy to find and keep a job to pay their bills and to pay the tax revenue on which their public services depend.
The Bill’s burdens on all will impose a multitude of additional costs—through employee rights without corresponding obligations or duties, and additional duties and costs on employers—uncertainties, as many of the proposals in the Bill will be decided by regulation, and costs to businesses trying to plan. They weigh the law against and involve cost and compliance burdens for an employer or business, as my noble friend has explained, not only in respect of the rights of employees but through procedures that vary from record-keeping and handling equality action plans in Part 2 to the new law on industrial relations, which is in favour of trade unions and changes or repeals measures that have been around since 1992 and, by and large, have brought peace and harmony to the labour market of this country and the prosperity we need.
These burdens will make for grave uncertainty, given the range of powers that will be exercised, as I have mentioned, by a Minister who may reflect the ideological bent of the current Government to direct their powers against business, employers and the UK economy in favour of those who pay for the Labour Party through political funding—we have had many a debate on that in this Chamber. They are to be finalised through consultation and announced later. Surely, it is not too much to temper such militancy by giving the public and the Government of the day an analysis of what the costs of the regulatory burdens will be so that any adverse impact can be measured and mitigated.
Amendment 311 calls for an assessment of the impact of the Act on productivity. My noble friend has said that the Government recognise in their own impact assessment that the productivity gain will be small. UK productivity is already significantly lower than that of our competitors in the G7—the US, Germany and France—but we will discuss international competitiveness later so I will not speak on that now. However, as a result of this Bill, we expect productivity to decline further by sector and by employee. We know that around 70.9% of workers in the UK work in firms with labour productivity below the mean. It is very difficult to envisage that productivity will increase as a result of the regulatory burdens in this Bill.
If growth is the aim of this Government, we need to increase productivity dramatically. This will not be achieved through an ever-shrinking workforce and the contraction of business activity; at my last count, our labour market had lost 115,000 workers since this Government came to power. Nor will it be achieved by burdening business—and, as my noble friend Lord Hunt mentioned, its capacity to invest in new people, plant and technology—by increasing the money needed to pay for the extra compliance and regulatory costs of this Bill, rather than investing in the production of goods and services, and the training of the people who produce.
I support this amendment, as I do the others, so that we shall have a real measure, based on independent, impartial data, that will shed daylight on the impact of the Bill on these three counts and help the people of this country—and the Government—to press for change, should we need it.
I came to this debate to plead with the Government not to say, “Oh well, this is what we are told by people and we think it is a good idea. It fits in with our obligations and our attitudes”. Instead, they might say, “We will argue in both the House of Lords and the House of Commons, and at the end of it we will see whether we were right. We will see whether the Opposition were right or we were. If we show we are right, we have a really good position to say to the public, ‘There you are, we said we were right and we have been proved right’”. They might say now that they are not even going to find out whether they are right, not going to measure it and not going to accept these amendments.
The noble Baroness, Lady Lawlor, and I disagree on most things. Both of us, though, think that it would be a good idea to check to see where we are. I do not understand why representatives of the trade unions are not getting up and saying to the Government, “Look, we think we’re right and we think you’re right, so check it and independently show that it is right”. Instead of that, the Government are admitting, frankly, either that they do not know or that they fear they would be proved wrong. I want a Government who are brave enough to say, “We’ll actually put it to the test. We’ll actually accept these amendments and we’ll find out who’s right. If we’re wrong, we’ll change it. If we’re right, we’ll crow like mad over those people who told us we were wrong”.
Last December, the Prime Minister infamously blamed Britain’s sluggish growth on
“people in Whitehall … comfortable in the tepid bath of managed decline”.
As we have been going through the Bill, I have felt like I am in the tepid bath of managed decline at the heart of Whitehall and Westminster. Therefore, I urge the government representatives here to remember their own Prime Minister’s words when deciding how they should approach the Bill, rather than just being partisan.
Between 2015 and 2023, the Conservative Government set themselves the target of a £19 billion reduction in business costs through deregulation. Instead, the Regulatory Policy Committee watchdog calculated that even exempting most Covid regulation, the regulatory burden increased by £18.4 billion in that period. I am saying this because people keep declaring that they are going to tear up the regulations getting in the way of growth, industrial capacity and so on, and then, the next minute, unintentionally, regulations grow. The Bill is so jam-packed with regulations that workers’ rights do not stand a chance of breathing.
One of the fears I have about the Bill, which I have raised in a number of amendments and which I hope Amendment 319 will address, is that it is a recipe for huge amounts of lawfare. Day one rights and protection from unfair dismissal both sound progressive and admirable, but the Government’s own analysis predicts a 15% rise in employment tribunal claims. There are already huge backlogs of between 18 months to two years, even before the Bill is enacted, so there is a real threat of a litigious clogging up of the system. Of course it is important that employees are treated fairly. As I have argued throughout consideration of the Bill, I am not frightened of trade union and workers’ rights at all, but I am concerned about this growth, encouragement and incentivisation of the use of lawfare.
I have just read a fascinating report, which I will send to the Ministers, entitled The Equality Act isn’t Working: Equalities, Legislation and the Breakdown of Informal Civility in the Workplace, produced by the anti-racist, colourblind organisation Don’t Divide Us, which assesses the unintended consequences of the Equality Act. Nobody thought this would happen, but it has led to a real fractiousness in the workplace: people are suing each other, all sorts of things are going wrong, and, in many ways, it has clogged up the system. The last thing we need is the Bill adding to that burden, leading to lawfare and people taking matters even further by suing each other.
Either an impact assessment is going to show that some of the concerns raised are overhyped, or in some instances ideological or raised by nay-sayers; or the Government can take the opportunity to say, “We never intended the legislation to do this, but we have seen that in some areas, it needs to be tweaked to make sure that it is not over-regulatory, damaging workers’ rights and wages and so on, in which case we are prepared to be honest and hold our hands up”. That is the very least legislators should do when they introduce a law that is going to bring huge change the whole business and workplace arena.
Growth will not come from productivity targets or ministerial ambition alone; it will depend on everyday decisions, as the noble Lord, Lord Deben, mentioned, made by entrepreneurs and small business owners around the country. We should support them accordingly. As mentioned previously, I do not readily back these amendments themselves—I do not think I agree with them—but I hope the Government will take careful note of the arguments they raise, particularly the point made in Amendment 310 about the effect on new and small businesses, which deserves further attention and consideration.
There are going to be economic consequences of this part of the Bill, and the Government should tell us how they view the impact of those. Noble Lords have spoken about increased costs. We all know—anyone who has been involved with business knows—that there will obviously be increased costs. Laws that we have put in over the years have added to those costs, but most businesses have managed to increase efficiency to try and mitigate them and make more profits. You have to adjust to what is happening in the world.
These amendments, and this part of the Bill, are about impact assessments and regulatory burdens. Are we putting too many burdens on people, or are those regulatory burdens helpful to the economics of this country? We must do things which increase productivity, and that is part of what the amendments are about. The noble Lord, Lord Deben, said that he had run businesses, and many of us in this Chamber have run businesses or advised them. I hope that he is going to be proved wrong—he asked to be proved wrong. I await the Government’s answer to the comments that he made in this debate.