Welcome to this final panel in today’s inquiry into the Government’s implementation of the Employment Rights Act. Matthew Taylor, thank you very much indeed for joining us today. Antonia Bance is going to open the questions.

Thank you for coming today. When do you expect the Fair Work Agency to be fully operational, and what are your immediate priorities?

We are at a relatively early stage of the journey. Lisa Pinney, who is the chief executive of the Fair Work Agency, is doing a fantastic job, but she does not become the full-time chief executive until tomorrow. That gives you an indication as to how early on we still are in this process of evolution. The focus right now is on ensuring business as usual—we do not want to see a deterioration in the performance of the agencies that came together on 7 April—and on preparing for the new responsibilities that we will be taking on from next April. The agency will grow by roughly two thirds in size when national minimum wage comes over from HMRC next April. In some ways, we have an even bigger process of organisational development next spring than we had this spring. Of course, we will also be taking on additional responsibilities, particularly in relation to holiday pay. We are preparing for that as well. That is a lot to do, but, on top of that, we are also looking for the synergies that we can get from bringing the different organisations together and seeking to influence various elements of our relationship with stakeholders and others going forward. It is at an early stage. The focus, as I say, is on business as usual and preparing for the future. I can already start to see glimmers of the way in which the Fair Work Agency will make a difference in the medium to long term.

Perhaps it is a little early to ask you—and I am sure we will come back to these topics—but are you already aware of areas where you feel like you are going to need more powers? There is a clear commitment that over time more powers will transfer to the Fair Work Agency, particularly things such as payment for cancelled shifts. What is your view on whether the Fair Work Agency should take that? Should you in time take a view on the enforcement of employment tribunal and ensuring that they are being paid? That would feel like a natural fit. Do you have any thoughts on what more you might want?

I do not have a hard and fast view on those issues. Our perspective from the FWA is that, if we are going to be asked to take on new responsibilities, they clearly have to be practical and enforceable. We need the resources to be able to do that. We have had an uplift in our resource to reflect our new responsibilities, particularly in relation to holiday pay. We have some additional powers. We have powers under the Fraud Act. Indeed, I suspect that in the next few weeks we will be starting to use those powers, which is real progress. Yes, there are lots of conversations about things that the FWA might do in the future. I participate in those conversations, but, as I say, it is primarily from the perspective of ensuring that, if we take on responsibilities of compliance and enforcement, we can undertake those realistically.

You mentioned an uplift in resources. How big is that uplift?

I think it is £47 million to £60 million. Is that right?

Yes.

That is the figure that I had in my head.

It is reasonable.

Yes. I was reading the Committee’s comments on the FWA the last time you discussed us. Resourcing was the thing that you came back to more than anything else. Given the generally straitened circumstances of public finances, we have had a reasonable uplift. I would say that it is not just how much money you get; it is how you use that money. Certainly, one of the things that we want to see from the FWA is the synergies and efficiencies that we can get from bringing those agencies together. For example, we can bring together areas such as intelligence, where the different agencies have different approaches, in a more unified approach. Of course, there is also scope for the use of digital and AI tools, which can also hugely increase our reach with workers and businesses.

We did make the point, because we were worried about it, that, when you look at the number of labour market inspectors to the number of workers, our ratio is well off compared to other averages. Are you going to close that gap? You might tell me you are going to use AI and intelligence and all that sort of thing to make everything more efficient, but I am not sure we would wholly believe that. How much are we going to be able to close the gap with other countries?

You would have to ask the Government that question, really. We will use the resources that we have. Like any agency, we will make the best case for the resource that we need. As I say, we have had an uplift this year. My focus is on using the resource we have as effectively as we can. If you will permit me, what the agency is doing at the moment is quite prosaic in the sense of keeping the show on the road, preparing for those new responsibilities and building a new team. Lisa Pinney inherited a very limited executive team. We are bringing in new people to do those roles. As I said, I am thinking about the medium term. To give you a flavour of that, at risk of being trite, I use five I’s as a way of thinking about it. The first is identity. While GLAA, ODLME, EAS and NMW all did great work, they were not really household names. The Fair Work Agency already has a higher profile. We are already seeing more referrals to us because we have that higher identity. The second I is impact. The fundamental strategic question for us is, given the resource we have and the nature of the challenge, how do we best use that resource? That will take us to interesting questions about the balance between relatively small non-compliance that affects lots of people around minimum wage and much worse forms of abuse that affect a much smaller number of people. How do you get that right? Intelligence and insight is the third I. How do we bring together our intelligence? You were talking in your last session about social care. We are particularly interested in getting a deeper understanding of sectors and where risks lie in those sectors. The fourth I is innovation. What are the things that we can do with technology? To give you one small example, we are building a digital front door right now, but could we, for example, maybe next year or the year after, allow workers to upload their payslip, analyse that payslip automatically and tell them whether or not there are other questions that they ought to be asking. The fifth I is influence. We exist in an ecosystem with all sorts of other organisations, such as the National Crime Agency, Immigration Enforcement, our colleagues in ACAS and other people. We want to work effectively with them, which the other agencies tried to do. Tim would probably confirm that it was not easy when we were so atomised. The FWA will be able to punch much more at the right weight in terms of influencing how we work with those partners.

That is very helpful. Ms Bance, do you have anything else on that?

I have loads of questions, but carry on.

Matthew, off the top of your head, how long should an employer be keeping employee leave records for?

As I understand the consultation that came out today, it is six years, but it is not retrospective. It is six years from the point at which the provisions come into play, which is the same as the minimum wage. From our perspective, the more the holiday pay framework aligns with the minimum wage framework, the easier it is going to be for us and for employers because it is basically the same way of working. In the end, holiday pay is pay non-compliance, just like minimum wage. In fact, the two often interact.

You are right. It is six years. I have gone to the ACAS website, and it tells me that it is six years. When I go on to gov.uk, it tells me that, as an employer, I need to keep records on employee leave for three years. If different agencies and Departments cannot work out between themselves what is going to happen, how does a business know what it should be doing?

At the moment, holiday pay is not enforced. People can take cases to employment tribunal, but that is what the consultation that is published today is about. Thanks for pointing that out. We are working closely with ACAS. One of the things that we are trying to make sure of is that we do give people very consistent advice. I will take that away. We are waiting now for the end of that consultation and to see the Government’s response to that. As I say, the more that it aligns with the way that we already operate on the minimum wage, which NMW does very effectively, the better.

The advice landscape, if we could put it that way, is quite broad. Either as an employer or an employee, I could go to ACAS, Citizens Advice, gov.uk or business.gov.uk. There are so many different places that I can go to get that advice. How is the Fair Work Agency going to simplify the advice landscape rather than add yet another place to get advice from?

First, we will work with our partners. I have had several conversations with the chair and chief executive of ACAS around how we make sure there is absolute alignment between the advice that we both give and that we are not duplicating in the advice that we give to employers. One of your witnesses in the last session was saying that sometimes minimum wage regulations can feel complex. NMW does a lot of really good outreach work—webinars and such—to ensure that employers understand their responsibilities. We are working closely with ACAS to achieve that alignment. We work with other stakeholders as well. I am really clear that the FWA should be at the centre of an ecosystem of compliance and enforcement. One of the things that Tim is working on is setting up a fair work assembly. We have a very good advisory board, but we want to set up an assembly that brings together a variety of stakeholders, including trade unions, employers’ organisations, third sector organisations such as CAB, so we can marshal that overall capacity to encourage compliance and ensure effective enforcement. Ultimately—you all know the complexities of this—we are looking at how we can use AI to start to develop a really effective tool for people. We know that the general public uses AI a great deal. It is great, but it is not always fully accurate. It is creating some challenges around the employment tribunal system. One of the things that we are exploring is how we can have something as agile and effective as AI that is also completely reliable, which will be the best place for people to go, whether it is hosted by us, ACAS or jointly.

Finally from me on that point, we hear quite often, in different situations across the country, that when an employer or an employee goes to somebody and asks a question, whether it is related to this or something else, they are told, “We are the wrong people. Go and talk to them over there” and, when they go and talk to those people over there, they say, “Actually, we are the wrong people. Go back to where you started and ask them”. How are you going to work with ACAS to make sure that does not happen?

When I met with the chair and chief executive of ACAS just last week, exactly one of the issues was triaging. How do we get that right? We ought to have exactly the same triaging system across the organisations. There will be queries that come to us that should go to ACAS and queries that come to ACAS that should go to us. That is the way that we should do it. If Lisa Pinney, the chief executive, were here, she would say that one of the things that we want to do at the first point when people come to us, unless it is an issue of serious labour abuse, is support workers and employers in sorting out the problem together and give them advice that enables them to resolve it. The majority of non-compliance is accidental. It is confusion. If we can help people to sort it out, not escalate it, that is the thing that we want to do, which, of course, is exactly what ACAS also does.

On that point, one of my concerns about this is that slightly unclear boundary between you and ACAS. There are lots of people who can give advice, but there is only one agency that can enforce the law. I would worry if the balance and the model was too much about the promotion of best practice to secure compliance—there are loads of people who could do that—and less about having active inspectors or using technology and new models that replicate intel for inspectors. Can you give us some assurance that you will stay very true to the enforcement of the outrageous abuses?

Yes, absolutely. We are here to do compliance and enforcement around the specific responsibilities that we have, which will be growing in the future. We also have an agency with a high profile. It is really important that, if people come to us, we do not say, “Go somewhere else”, as your colleague said, and we hold their hand, as it were, and take them to the person who can give them the best advice and support. The important thing is that we have no desire to empire-build at the expense of ACAS and ACAS has no defensiveness about the fact that we are here as a different kind of agency. Of all the bodies that I have been meeting with, the one I have met with most frequently is ACAS. We have a memorandum of understanding. We are working really collaboratively.

I am delighted that Tim is here because he is the person who commissioned that research and has indeed been following up various aspects of it. If it is okay, Chair, I will ask Tim to come in.

It was a very valuable piece of research. We invested a lot of time, money and effort into it. The key things that came out of it were highlighting where there were actual legal breaches, first of all, within the FWA space around minimum wage, non-payment or underpayment, non-compliance with agency worker rights and the issues that we had highlighted as part of the Office of the Director of Labour Market Enforcement previously around the provision of pay slips and the provision of contracts, which we still believe are fundamental things that workers need. Overall, that subset of infringements was affecting about one in seven workers. The survey also took a broader view of other areas, such as whether people were getting their leave, be it their annual leave or maternity leave, sick leave etc., and picked up on some of the consequences of some of these working relationships in terms of mental and physical health. That starts to paint a picture more broadly of what is happening in the labour market, which is going to be highly relevant to the work of the FWA, especially over time as it grows and takes on new areas. To go back to your question about how we are using it, as I am sure you will be aware, the FWA will be producing its first full strategy in spring next year. We have the findings from the Working Lives survey, intelligence, other research and the discoveries that our investigators are finding in the field. All of that is being pulled together to help ensure we are prioritising in the right areas.

I am keen on having a sector-based approach because the nature of the risks varies from sector to sector. You had a vivid account of the risks in social care in the last session. Take construction as an example. We may have a Prime Minister who is going to emphasise the need for a lot more buildings. We may therefore need a construction visa scheme. Who knows? Construction is different. As I am sure you know, there are very long and complex labour supply chains, for example. You also have particular small sectors, such as hand car washes and nail bars, which are recurrently non-compliant and where the links to criminal activity are more common. There should be a strong sectoral emphasis, but not exclusively. We also need to look at the geographical dimensions to this. The work that Tim commissioned demonstrated that there are particular categories of workers who are more at risk, such as migrant workers, and workers with disabilities. It will be sectoral first, but there will be other ways of looking at this. National Minimum Wage has been doing some really interesting work on geographical compliance, going into areas in a very concerted way. That is really useful in terms of raising the profile. If you do that in a concerted way, the story gets around employers and it raises people’s awareness. It gives a sense that the whole employer community needs to think about this.

The research did not get down to that level of granularity.

Some of it is at city level and some of it is broader, depending on how populated the area is.

It is very clear to me that one of the relationships that I want us to develop is with local government in terms of understanding the risks within their locality and the scope for joint operations around sectors. It is often the case that the sectors that are non-compliant when it comes to labour regulation are also non-compliant when it comes to tax, VAT, environmental health and all sorts of other things.

This point about grey economies and your role in taking on grey economies is of fundamental significance in helping shift sections of the country from a low-pay and low-skill equilibrium into something more virtuous.

Yes. We have a team working specifically on thinking about those hidden sectors, as it were, where we need a different kind of approach to what is going on. It is not so much a labour market issue, but we have seen a lot of interest recently in high street outlets and the issues that are raised there. It is that kind of approach. You need to bring agencies together to look at an area where there seems to be a high risk of criminal activity. You need to look at it from a number of perspectives. What is the most effective way of tackling that?

Thank you for your evidence so far, Mr Taylor. The FWA has prioritised visible and impactful enforcement. You have touched on this already, but I wanted to know what that means in practice and how it will differ from previous bodies that have had the responsibility.

Yes, I am not shy of the media, as people who follow my incredibly long career will know. One of the things that the FWA should be doing is making this stuff a bit more interesting. The other agencies did not really have the confidence to do that or they did not necessarily feel that they had the expectation that they should do it. If you go to the FWA website, you will see a little film of a couple of our staff going to a hand car wash in Ramsgate. It is not the most exciting film in the world, but nevertheless they are there and you can see pictures of what they found. We should be doing more when we undertake these exercises. It is of interest to the media and the public. It helps the public to understand where the problems might lie. It gives the public confidence that we are doing what we should do. When people ask me, “What is the FWA for?”, I would say it is there for three things. First, it is there to protect workers and to promote fairness. Secondly, it is there to promote business competing on the right basis, on the basis of enterprise, innovation and investment, not the capacity to undercut other people by playing fast and loose with the rules. Thirdly, it is about public trust. The public does not always trust that Government and public services will live up to their promise. It is really important to me that, as the FWA develops, it gives people real confidence that, whatever the Government have decided and whatever regulations that are in place, they are actually being complied with and enforced.

Would you say that your biggest challenge is not potentially people breaking the laws or regulations but an awareness of what the laws and regulations are in the first place?

Yes, compliance is always what you want to achieve. We would all love to be in a world where we do not have to do any enforcement because we have achieved 100% compliance. Compliance first is our approach. You will particularly see that with National Minimum Wage. The vast majority of what it does is going out and publicising the national minimum wage, getting people to understand the regulations and organising webinars. The geographical work that I talked about is not about landing in a place and grabbing people. It is going into a place and making a concerted attempt to raise people’s awareness. What comes out of that very often is lots of employers coming to us and saying, “We are not sure. We think we might have broken the rules. Can you help us?” It was absolutely the right decision that the Government made a couple of months ago to say that they are not going to name and shame employers that have come forward, said that they have made a mistake and corrected that mistake. Compliance first is always our approach, while being aware of the fact that there are some very nasty people doing very bad things, for whom we need to have a very focused approach. That is a very different world from the employers that have made a mistake.

You have answered part of what I was going to raise around that balance for employers that are trying to do the right thing versus those who are, as you were saying, working in the grey or the illegal economy, to put it bluntly. I used to be a union organiser. I spent a lot of time outside workplaces, and sometimes inside them, targeting those where we believed there were poor practices going on. In one very particular instance in West Bromwich in the meat sector, which is classically quite dodgy, we gave our cards out and we had workers come to the office the following week who were clearly trafficked. You could see it in their faces. It was then about trying to get all the various agencies together to say, “What do we do and how do we do it?” That took 10 years. I spoke to somebody by accident who said they worked on the police investigation that brought them to justice. The good thing is that it ended well, in that people were taken out of that environment and all the agencies managed to get that sorted. That happened because we were outside a non-unionised workplace giving out our business cards, and they saw that somebody might be able to help. They were not our members. They were just people who had gone, “There is somebody, and there is an address on the business card”, and they walked to us. That is an extreme example, but I was just wondering about the way that you look at risk-based enforcement action. There are lines of information that are coming through. I know you have advisory groups, where you have unions. Have you developed some kind of scoring matrix that says, for example, “You are non-unionised, so you are higher up the tree”? When you have a union, you have people on the ground who are telling you what is happening. You have people who care about health and safety and making sure that pay slips are correct and all those things. When you get to the other extreme, how are you thinking or developing those scales to identify where really extreme abuses are going on and how we make sure that we are as quick as we can be? Some of these get missed and we know that you only have limited resources. In the HMRC example, you might, as an employer, get an inspection every 500 years. It has to be clever; it has to be targeted. I just wondered whether you could talk about how you are starting to develop those types of tools for the best deployment of your resources.

Come in, Tim, if I have not covered it. There are three things I would want to highlight. The first is collaboration. It is really important to collaborate with partners in the police, the National Crime Agency and others so that, when the information comes in, it goes immediately to the right place and we can act on it. I suspect that, at the factory that you are talking about, there were a whole variety of issues going on. The second I have referred to, so I do not need to repeat myself, which is profile. If the FWA is a well-known brand and people have seen what it does, hopefully that means that people will ring us and bring us in. The third thing is intelligence. We have used pretty sophisticated models in the past, but they have lacked a bit of nuance. As we grow and develop, I hope we can, also using technology, pinpoint better. We have been doing some work, for example, with Nottingham Trent University, which has developed a really good tool to identify where hand car washes are because they spring up and close down all over the place. If we identify where they are, we can then start to think about how we can work with local government on having a concerted approach to a sector that is repetitively non-compliant. It is intelligence, profile and collaboration with partners. Tim, is there anything that you want to add?

Yes, I would agree with that. Going back in history to the DLME days, yes, we had a risk model. We are in the process of reviewing that to see how that can be fit for purpose for the FWA. That will be a central part of what we are doing. In terms of the union question, a big strand of the Working Lives survey looked at unionised versus non-unionised workplaces, or indeed unionised and staff association workplaces. Thirdly, linking back to what Matthew was saying about this idea of an FWA assembly, what we learned very clearly from DLME was the power of worker voice organisations, whether they are unions or community groups. That really came to light in the case of Leicester and the garment industry. There are some really excellent community groups there that can bridge the gap between what official enforcement does and what the worker needs. As part of the FWA assembly, we can start to bring in more of that voice as well.

We have just brought in our second victim navigator to the FWA because we think that being able to provide the right kind of support to people who are very vulnerable, often migrant workers, is really important.

You said that was the second, i.e. you have two people who have that role.

We have two people now. This is not something that was undertaken before in the same way. It is a function that will develop as the organisation grows because it is particularly important for those vulnerable workers.

This is going back about 10 years now, but even the police locally did not know what to do. It was the union that transported them in secret and paid for the hotel while the agencies tried to figure out whose responsibility was what. The fact that this is all being brought under one roof is going to be really powerful as you develop the tools and the structures. Certainly, in previous times, it worked off the good grace of individuals rather than a really strong process that knew exactly what to do when that first red flag was raised.

I completely agree.

What else do you need from Government?

A bit of time is what I would say. I am a very impatient person, but we set the agency up pretty quickly. The Minister responsible for creating it and kindly appointing me knows that it was a pretty accelerated process. As I said, there was quite a lot of attrition of senior people from those organisations when the organisations came together. We are making good progress, but the FWA is not going to be the all-singing, all-dancing agency that I want it to be for some time. I would ask the Government and I would ask you you—we will keep checking in, and it is great to have this conversation—to give us a bit of time, given that we are still a pretty young agency.

You are not encountering friction or frustration in terms of transferring in the resources from different component parts of the FWA from around Whitehall.

I was talking to someone the other day whose expertise is in staff engagement. They said to me, “Staff engagement is the single most important determinant of productivity. The one absolute golden rule is that change reduces staff engagement”. You cannot go through a process like this without there being frictions and difficulties. We are working through them and we are developing a good team. The thing that was missing a bit before was a kind of buzz. It was all about, “What are we losing?” rather than, “What is this new thing?” That is really starting to change. I am starting to get a sense, partly because we are bringing new people in, of excitement about the possibilities.

You are not telling us this afternoon that there is something that you are lacking from Government or Ministers in order to fulfil the mission, as you see it.

Not at this stage, no. As part of the strategic steer that we got when we were established for our first year, one of the important items was thought leadership. It was important to me that that was there because it is important that we are able, even though we are an executive agency, to speak frankly and honestly, if we think that there is a challenge about us being able to fulfil the responsibilities that are being placed on us. That is not how we feel at the moment, but you can rest assured that, if we do get to the position where we are being expected to do something that we do not think we can properly do, we will say it.

The first item is around deregulation, and there is sometimes a concern that that means it is our job, as it were, to reduce regulation. That is not our role. What that means for me is improving the way in which we support employers so that they can come to a single place and get the information that they need. It is about making regulation easier to get your head around and comply with. That is what that means. I have had a few conversations with people who have been rather confused by what that means, but that is what it means. It is about making it easier for people to understand how to respond to regulation.

Yes. My reflection on many of the conversations that are happening at the moment over the Employment Rights Act is that, as I said earlier, change is always difficult. Employment law is complex. It is complex in every country in the world. When things change, it is challenging.

We have come to the end of our time. Thank you very much indeed for your evidence this afternoon. We are very much looking forward to scrutinising your work over the next three years of this Parliament and helping ensure that you do have what you need in order to implement the mission that you have been given. That concludes the session. Thank you very much indeed.