Private Equity (Transfer of Undertakings and Protection of Employment) Bill

I congratulate my hon. Friend the Member for Nottingham, East (Mr. Heppell) on his success in the private Members' Bills ballot, and on raising the topical issue of takeovers and their impact on employees. He was kind enough to thank me for discussions that we have had, and I am sure that hon. Members on both sides of the House will join me in paying tribute to him for the honest and open way in which he presented the issue. I appreciate his long-standing interest in the condition of people at work. I know that he believes in decency and fairness in the workplace, and that that is the motivation behind the Bill. In particular, he wants to ensure that there is fairness when circumstances beyond the control of the employee change and have an effect on his or her employment situation. My right hon. Friend the Member for Coatbridge, Chryston and Bellshill (Mr. Clarke) spoke with passion about the impact of such change on his constituents. The backdrop to the Bill is increased public interest in the impact of private equity investments in the economy and, in particular, any impact that they may have on terms and conditions of employment. As a result of the Bill, and the debate, there are several questions before us. Where should the TUPE conditions apply and in what circumstances? If the Bill extends those conditions, would it do only that, or would it do more that that? I fear that in several respects it would do more. My hon. Friend the Member for Nottingham, East posed the question whether employees whose company has had a large injection of capital, or has been bought or sold by private equity investors, would benefit from further TUPE protections beyond those already afforded under existing legislation. There is also the legitimate question whether the proposals in this Bill, which allow for extra regulations to govern the process by which companies may be bought and sold by private equity companies, would result in companies being less able to compete and thrive, or be rescued through takeovers, in what is a competitive global economy. I will return to the Bill in more detail, but I would like to begin by setting out some facts about the current situation in the UK labour market. Over the past decade, our record has been, on the whole, a highly successful one. The UK labour market has become one of the most successful in the world, with more people in work than ever before. Some 2.7 million more people are in work now than a decade ago, and at almost 75 per cent., the UK has the highest employment rate in the G7. The unemployment rate remains relatively low in historical terms, at 5.5 per cent., which is the lowest rate among all our major competitors, except Japan and the US—well below the average for the European Union. One reason for that success has been the fact that our labour market combines flexibility and decent minimum standards in the workplace, and the TUPE regulations are part of those standards. Other key protections include the minimum wage, paid holidays, anti-discrimination policies and so on. We have introduced that foundation of standards without damaging the economy and without deterring inward investors. We have an open market economy that allows companies to meet the challenges of globalisation and competition. Over the past 10 years, we have made real progress in maintaining stability and in allowing companies to make long-term decisions while knowing that the economy is run on a stable basis. Even given such national economic stability, there can always be uncertainty in a world where companies are bought and sold, where investment moves across borders and where technology and increasing openness in world economies enables outsourcing and international production processes that would not have been possible even in the relatively recent past. Whatever the uncertainty, open engagement with globalisation is the approach that will maintain our economic success in the long term. Of course, that approach is not without its challenges. There is a need for the Government to ensure a fair labour market with rules to ensure the decency that has been spoken about, and to guard against the exploitation of the vulnerable. In putting that framework in place, we must ensure that business and enterprise can continue to flourish. We have to acknowledge that although we hope that businesses will flourish, we know that some will fail. That has always been the case, and we have to support the process of risk-taking and entrepreneurship that is essential to the economy, while always equipping workers to be adaptable and able to cope with change, which is moving at a faster pace than ever before. A manifestation of the flexibility that characterises our economy are the dynamic capital markets and investment processes, of which private equity is a relatively small but important part. In introducing the Bill, my hon. Friend acknowledged the valuable role that such investments can have. The first question is whether the Bill would protect employees in circumstances where private equity has made an investment in the company that they work for. We have heard examples of how employees can bear the brunt of private equity restructuring. Those examples referred to job losses and poorer terms and conditions for employees. That argument—especially in the context of the Bill—contends that that would not happen, or at least that the effects would be minimised if TUPE were extended to those circumstances. However, it is important to remind ourselves what the exact purpose of TUPE is. The TUPE regulations implement the acquired rights directive and apply when a business or part of a business is transferred from one employer to another. That is the material point—the regulations are about the change of employer. Under the terms of TUPE, employment continues with the new employer, and employees have the same terms and conditions and continuity of service as with their old employer. That is necessary, because without the TUPE provisions, employees whose jobs were transferred from one employer to another would not have an employment contract at all. They would have to go to their new employer to ask for a job. When it comes to share transfers, however, the identity of the employer does not change. The employees' contract of employment is still valid and cannot be altered without the agreement of both the employee and the employer, exactly as in any other employer-employee relationship. What, then, of redundancy? Are the jobs of employees who are subject to TUPE always protected in the event of a transfer? As this debate has showed, that is not the case. The TUPE regulations recognise that redundancies in restructuring after a transfer can be necessary for the business. The TUPE regulations allow redundancies to occur for an economic, technical or organisational reason, or for reasons unconnected with the transfer. Restructuring can occur if it would make a business more attractive for sale, for example. What TUPE ensures is that length of service is taken into account should employees be made redundant for an economic, technical or organisational reason. As employees have a contract in the case of a share transfer, their length of service is recognised already, so they would not need the extra provision. What of the other provisions in the Bill, which are designed to ensure that employees are informed and consulted? As I have said, some aspects of the Bill go further than TUPE. I fear that that might be true of the some of the information requirements in the Bill, particularly in respect of information on the prospects for the company over the next five years. Even if such information could be given accurately, that requirement would place an additional burden that does not exist currently. The Bill also suggests that employees and their representatives must be given sufficient time to get advice on the merits of the transfer and would allow for back-and-forth exchanges on such issues. That could take a significant amount of time and could add extra uncertainty for employees. Sometimes a takeover may, in fact, be a rescue, making it necessary to proceed with some speed. The Bill also sets out what the outcome should be if that procedure is not followed. I appreciate that my hon. Friend has said that he had further thoughts about the process since first drafting the Bill, but as it stands it says that the employees or their representatives could go to the High Court to ask for an injunction. That would be a new situation, where we would be asking the courts to decide whether an investment in a company should go ahead. Those provisions, taken together, could significantly inhibit necessary investment in the economy, and in some situations could work against the interests of employees, rather than in their favour. Of course information and consultation are important, and regulations are in place to deal with that. The Information and Consultation of Employees Regulations 2004, which I shall speak of later in more detail, went a long way towards ensuring that employees are properly consulted and informed about changes to their company, by allowing employees in companies with, at first, more than 100 employees—soon to be 50—to ask for information at any time. The Government put those regulations in place to ensure proper consultation of employees in all companies. However, if the Bill was enacted, what would be the outcome if a TUPE transfer was also a share transfer—that is, if one company bought another and subsumed it into its main operations? Would the TUPE provisions allow for a one-off consultation about possible redundancies, for example, or would there be a much more comprehensive consultation that required the share investor to state all the relevant facts"““in relation to the period beginning with the date the information is provided and ending 5 years after the date of the proposed transfer””?" As has been said, there is no shortage of litigation with regard to TUPE. I fear that the Bill, certainly as it stands, would end up adding to the confusion, not only for the employers—the transferor and transferee—but, in some situations, for the employees as well. The hon. Member for Shipley (Philip Davies) spoke for some time. I am happy that he acknowledged much of the success of the investment environment. The OECD has rated the UK as having the lowest barriers to entrepreneurship of any major economy, and for the second year running the UK maintains its overall ranking, in a list of 178 world economies, as the sixth easiest economy in which to do business, according to World Bank benchmarks. The UK's ranking as an economy in which to start a business has improved from ninth place last year to sixth place this year. The World Bank also confirms that ours is one of the top two European economies in which to do business. The statistics on start-ups in the UK are good: we are the third best of the G7, behind the US and Canada. The UK business population continues to increase, and there are some 1,800 start-ups every working day in England and Wales. Business survival rates are also higher than a decade ago, with 92 per cent. of VAT-registered firms still registered after one year, and now over 1 million more people work in small and medium-sized enterprises than did seven years ago. We want to maintain that environment. One of the reasons behind the Bill is that, as a result of some high-profile takeovers, fears have been raised that private equity firms can be short-termist and impact negatively on jobs and investment in the companies in which they take an interest. That debate will continue long after today. However, whatever one may think of private equity in all types of businesses—those owned by private equity funds, small businesses or others—change is sometimes necessary. A takeover can sometimes be positive, leading to change that helps to reinvigorate a company and strengthen its prospects. Takeovers can mean long-term investment decisions that improve productivity and profitability, resulting in a stronger company. We should always remember that the alternatives can be worse. ““Private equity”” has become something of a catch-all phrase for many different transactions—from venture capital to helping budding entrepreneurs start a company, to the much more high-profile takeovers of companies which have been in the news. As in any field, some companies are good and others less good, but the Bill will not address that issue. I am sure that, as in other fields, most private equity companies are responsible employers and others are less so, but generally there is little hard evidence to show that employees are disadvantaged when their company is bought or sold by private equity. Indeed, although the evidence base, particularly as regards the UK and European private equity markets, remains weak, and the results are inevitably to some extent conflicting, some facts are beginning to emerge. Reference has been made to the studies carried out by Nottingham university. Studies from the Work Foundation and other institutions also show that although there can be an impact on employment in the first year after a leveraged buy-out, it often rises strongly thereafter. Far from being predators always out to make a quick buck, private equity firms can bring extra capital and new working practices to a company that is going through tough times. Although there can be job losses in the first year, the record can be better afterwards. Indeed, some of the investments are rescue efforts; it is also worth remembering that there are often job losses in the years leading up to a takeover, which suggests that the company concerned has not been in the best of health.