The human touch

The Department for Work and Pensions has recently published its White [aper on reform of the state pension. The key changes, following an announcement in the Budget, will commence in April 2016: 

• There will be a single Tier state pension set at £144 a week in today’s money – this will be uprated over time.
• This will replace the current basic state pension of £107 and the various “top-ups” which individuals can qualify for.
• An individual will need 35 years of qualifying contributions, up from the current 30.
• Anyone with less than 10 years of contributions will not receive a pension.
• Pension credit and “contracting-out” will be abolished.

The aim of state pension reform is to provide clarity and allow individuals to know what they will receive in retirement.

This, in turn, it is hoped will drive greater private saving as it is clear that the state pension will not provide a generous income in retirement.

When the proposal was modelled by the DWP, it became clear that the numbers who would qualify for the single Tier would be significantly less than Government intended. By 2060, only just over 60% of the population would qualify the new single Tier state pension without further change. The DWP has therefore sought to speed up this transition in a number of ways, all basically intended to draw in as many people as possible.

The self-employed, for example, will be fully brought into the new system. This means that they will in effect be credited for the past years where they paid only a very small NI contribution. Some will therefore be significant winners.
Similarly, for those in public sector schemes, who have paid a lower NI contribution as a result of having been contracted out, they too will in effect be credited for the years when their contributions were lower.

The result of these changes is that by 2050, 90% of pensioners will receive the full single tier pension, but some will have paid less in contributions than would otherwise be required.

The ending of contracting out will have a significant impact for employers who have or at some point had a Defined Benefit pension scheme. Any employee who was at one time enrolled in a DB scheme will have contracted out of the second state pension, which was at one time known as SERPS. These employees will have then paid a reduced NI contribution, as will have their employers.

With the abolition of the second state pension, there will no longer be anything to contract out of and these employers and employees will now have to pay the full applicable national insurance contributions. This will mean an increase in the NI contribution of employers of 3.4% of relevant earnings.

For contracted out employees, they will be fully brought back in to the state system and pay the full NI contribution, which is an increase of 1.4% of relevant earnings.

Clearly, these are significant amounts. Government wishes to ensure that amounts built up in schemes until the point that the new single tier pensions implemented continue to be paid, but also ensure that the future of the remaining DB schemes is not undermined.

Government has announced that there will be a statutory exemption or override for affected employers that would allow them to offset the cost of the additional NI contributions by reducing future pension benefits or increasing employee contribution rates. These changes would necessitate a change to pension scheme rules, which in some cases will require the consent of the trustees.

The Government therefore proposed to give employers limited powers to change scheme rules for these purposes without trustee consent but after consulting with scheme members.

This is a significant concession to employers, but is intended to allow employers to still have DB schemes to continue to support them.

On the whole, the changes represent a significant simplification of the current state pension, but also highlight the challenges of providing an adequate retirement income.

Two years on from Lord Davies’ report on the lack of women on boards, EEF, the manufacturers’ organisation, in partnership with Lloyds Commercial Banking and Cranfield School of Management have published the FTSE 100 Women in Manufacturing Report. It is the first major assessment of the role of women in senior positions in manufacturing, at a time when questions are being raised over whether to implement statutory quotas for women on boards and how to tackle the country’s shortage of female engineers.

Manufacturing companies account for 29 of the FTSE 100 companies and the report highlights that women account for 19% of these board positions, performing slightly higher than the average of 17% in the entire FTSE 100. It also ranked the number of women on the manufacturing boards, with GlaxoSmithKline performing strongest with five women accounting for 33% of their board. However, with 81% of all directorships held by men, manufacturers and other sectors still have a long way to go to unlock the talents of their female talent pool.

Interviews conducted during the survey with leading board women, including Dame Alexandra, non-executive director of Rolls Royce Holdings Plc and Professor Dame Ann Dowling, non-executive director of BP plc, reveal a number of reasons for the low number of women on executive boards. Some recurring themes stood out including, some women’s tendency to undervalue their own skills and lack of role models in the industry.

Other existing research reveals that the number of female engineers in the UK has risen from just 1% to 6% since 2008 and  lags behind its European counterparts with 18% in Spain, 20% in Italy and 26% in Sweden.  So why is the UK not supplying the same number of female engineers as other European countries?  For starters, vocational routes into the industry are put on the same parity of esteem as academic learning. Whilst the tide is beginning to change in the UK, with an increasing focus on Apprenticeships, there is still some way to go. Moreover, engineering is seen as more of a ‘professional’ pathway in such countries. In the UK we need to make it clear to young women that a professional career in manufacturing is accessible and attainable.

EEF urges for a grassroots approach, with both government and businesses targeting girls at a younger age and doing more to highlight that manufacturing can be a modern, dynamic and high-tech sector that is not ‘just for boys’. Research from Engineering UK reveals that a 91% of young females effectively rule themselves out of an engineering career by not choosing triple science at the age of 14. A light-touch approach to careers guidance or ‘inspiration’ should begin in primary school, with more structured careers advice being available to young people in secondary school, including a face-to-face element.

EEF and its partners want to increase the number of young women learning science, technology, engineering and maths (STEM)  subjects , and better  promotion of vocational pathways including apprenticeships. The UK needs to continue to champion manufacturing but to specifically target young females who could become future leaders of our industry.

This Tuesday sees the opening of the Institution of Occupational Safety and Health (IOSH) 64th annual conference, under the theme of ‘Fit for the Future’. Of course, being fit for the future does not simply refer to the physical wellbeing of employees and employers but also the health of businesses themselves, which are constantly seeking to innovate and grow. One major barrier to these endeavours is the cost of doing business when dealing with regulation, particularly in the case of health and safety, although there are promising signs that management is becoming more involved complying with it.

In its latest annual health and safety report, ‘Making Health and Safety Work for Business: removing unnecessary Health and Safety burdens’, EEF outlines its ambition to reduce the cost to business of dealing with health and safety requirements. Manufacturing in particular faces many challenges from regulation, but EEF welcomes the report’s findings that the management are increasingly taking health and safety seriously.

Over 200 manufacturers were surveyed for the report, which first and foremost shows promise for the future of health and safety. The level of management involvement in health and safety matters now exceeds 90% for most measures, and the number of reportable injuries, 398 per 100,000 employed, was considerably lower than the HSE’s own data for the manufacturing sector, 550 for 100,000 employed (2011/12).

However, there has been a concerning decline in certain aspects of the annual report and a number of ongoing concerns in the industry that government urgently needs to address. By and large industry relationships with regulators remain positive, but have also continued to decline over successive EEF surveys since 2008. Just over half (55%) of respondents viewed their relationship with the regulator as positive, a significant drop from 75% in 2008. Manufacturers were generally positive about the effects of health and safety requirements and regulatory burdens, although seven in ten had experienced an increase in costs and almost eight in ten an increase in time spent on health and safety compliance in the past three years.

The report’s findings are especially timely with European regulation currently high on the agenda, namely with regards to the Prime Minister’s pledge to cut red tape. For example, companies saw no need for a Musculoskeletal Directive, with 64% believing that the existing Display Screen Equipment (DSE) and Manual Handling (MH) regulations were fit for purpose and did not need updating.

EEF is calling on the government to become more active in its involvement with Europe on delivering proportionate health and safety directives, reform UK health and safety regulation which impose strict ‘liability’ under criminal law, and explore the feasibility of bringing Health and Safety enforcement completely under the umbrella of a single organisation. It is essential that management continue to view health and safety regulation as beneficial to their business, but this can only be achieved with a reduction in the number of regulations on the statute book and, in turn, the time and money spent complying with them.

Manufacturers already offer flexible working arrangements to their employees, often going above and beyond what was covered in the announcement made by the Deputy Prime Minister today. In the modern workplace, flexible working is a two-way street. Not only does it help employees balance their lives inside and outside of work, it also helps employers secure commitment and flexibility from their workforce.

But with flexible working already in practice amongst many businesses – do we really need to legislate the right to request flexible working?

Employers have witnessed an increasing number of legislative changes affecting the relationship between employers and their workforces including the Agency Workers Regulations and the abolition of the Default Retirement Age, what they need now is a break from additional legislation.

Businesses are looking for a stable regulatory environment which facilitates discussions between employers and employees to find the most suitable approach rather than one that inhibits it by imposing a ‘one size fits all’ approach. What we must ensure then is that new proposals, including those announced today, do not add additional complexity, particularly at a time when companies are engaging in faster-changing and less-predictable markets.

In is also worth highlighting that many manufacturers already operate their own company policies to offer flexible working arrangements to all workers. So we must be careful that these businesses do not suffer from administrative penalties where regulation then intervenes. We would not want to see requests made under the legislation becoming more burdensome and slow for both employers and employees as this can potentially undermine a positive workplace relationship. There is a risk that legislating for the right to request to all employees may result in employers sacrificing informal processes for more statutory cumbersome ones.

Moving on to the introduction of flexible parental leave - employers can see some advantages from giving parents the flexibility to split parental leave as it will allow some mothers to return to work quicker. The issue has always been ensuring that flexible parental leave is straightforward, so business will welcome the decision to allow leave only in single blocks. A simple, clear framework reduces the opportunities for dispute and supports continuing good relationships. In contrast, the current arrangements for parental, paternal and maternity leave and pay are already beyond the comprehension of many employers and employees.

One issue that the Bill will need to address is notice periods. Companies have increasingly specialist skill needs and will then need longer notice than the current eight weeks to arrange cover for an employee who could be away from work for potentially months. There may also be questions around the likelihood of both parents working in the same company who then take parental leave at the same time, which would be of particular concern for small businesses.

Manufacturers support and value their flexible workforces and already agree on a wide range of working arrangements for all workers, flexible parental leave should build upon this, but success is dependent on the simplicity of the proposals that allows both employers and employees to plan for the future.

This Friday sees the closing date of the call for evidence from government on the idea of compensated no-fault dismissal’. First raised in a report commissioned by the Prime Minister by the venture capitalist,  Adrian Beecroft, this proposal would allow employers to dismiss an employee freely and without fear of an unfair dismissal claim, provided the employee was paid a fixed amount in compensation.

The publication of the Beecroft report caused a media storm, during which the Business Secretary, Dr. Vince Cable was reported to have said that the idea “bonkers” and that it was not the role of Government to scare workers out of their wits.  Mr Beecroft retorted in an interview with the Telegraph, calling Dr. Cable a socialist.  Despite this spat, the Business Department is asking for evidence on the impact of introducing the idea just for micro-businesses i.e. companies with less than ten employees. 

After much careful consideration and consultation with its members, EEF this week publicly responded to the call for evidence, rejecting the idea on balance.   This may seem counter-intuitive, as some members do tell us that they are sometime frustrated with the process of dismissing underperforming staff.  Nonetheless from our conversations with members we see little benefit from the idea, and indeed significant risks. Employees may think twice, for example, before working for a micro business if they could be sacked overnight. While the protection to employers would be very limited – former employees would only be barred from bringing unfair dismissal claims, which as stand alone claims make up less than 10% of all claims employers face.  In addition the level of compensation to be paid was difficult to determine: too little and workers would be exposed to being sacked and left with almost nothing; too much and some workers might see the compensation as the minimum to be paid for ending their employment.

For these reasons we have come out against the idea.  There is much in the Government’s reform programme which we would like to see faster progress on – the idea of protected conversations and greater use of compromise agreements for example – but it is our view that ‘no-fault dismissal’ is an unproven concept and the government should concentrate on these other, more important employment policy reforms.

The biggest employee relations challenge for most manufacturers right now is pay and it will continue to be so as we move into 2012. With inflation currently running at over 5%, employees and unions alike are looking for substantial pay rises in order to offset the increased cost of living. Some trade unions are even suggesting that a 3% pay rise is effectively a pay cut!

This challenge is closely followed by pensions. Proposed changes to public sector pensions remains in the news with potentially the biggest UK strike for 30 years due to be held on November 30th 2011. Many manufacturers face similar challenges to the public sector; they still run finally salary schemes which they may well be looking to review and potentially change in an attempt to reduce costs and liabilities.

With a fragile economic climate and shrinking order books, cost reduction will be king in 2012 with many manufactures re-visiting measures such as short-term working arrangements and pay cuts. Whilst the unions may have been accommodating in 2008 to protect the jobs of their members, this time around, they might not be so willing which could see more and more industrial action taking place.

It is in this context that effectively managing and negotiating change becomes vital, whether a unionised site or not. So we are running a series of seminars to help manufacturers manage and negotiate their way through change. If you’re going through pay negotiations or looking to reduce costs and implement changes to terms and conditions, this must-attend event will help you successfully plan and implement change within your business.

As we move in to what looks to be a challenging year ahead, how will you deal with change?

The use of social media has blurred the lines between the private and professional world, presenting new and significant challenges for employers.

By the very nature of social media, information can be disseminated to an audience of millions at the click of a button. Businesses are now making use of social networks to promote their business and engage with their customers, their market and their supply chain. Many employers are also taking advantage of the opportunities of social media in recruitment, reaching out to potential recruits and researching candidates before offering an interview or making an offer.

But is it fair - or even legal - to take a peek at a potential's profile? When might this undermine a proper recruitment process or even fall foul of data protection or discrimination law? And when can you lawfully reject a candidate because of what you saw online?

Your employees are even more likely to be using social networks and social media, keeping in touch with friends, colleagues and ex-employees. But employees can just as easily talk about your business as what they're having for tea, and what they thought was a private comment between friends can all to often become public.

So what would you do if one of your employees was circulating disparaging information about your organization? Or if photos are posted online of an employee wearing your company uniform in a situation that puts your organisation’s reputation at risk? Or if someone tells you that an employee’s Facebook page shows they are not really sick when they are claiming sick pay?

The courts and tribunals are just beginning to grapple with the question of how far employers are allowed to intrude upon an employee’s online private life in these sorts of situations.  It’s clear from emerging case law that employers can act to protect their reputation and their business interests in many instances, but that they must first take steps to establish clear rules with their employees.  Establishing these rules, and then investigating whether or not an employee is complying with them, is not always easy.

We're running a series of seminars to help you work through these new and complex issues. LinkedIn to your Employees use of Social Media?will help you:

You can read more about our seminars by clicking here.

The latest research from Birmingham University suggests that skill shortages in STEM occupations are just a figment of manufacturers’ imaginations.

Their report suggests that only 46% of 2009 engineering graduates were in jobs related to their degrees. The rest were either in a non-engineering related graduate position or in non-graduate employment.

The conclusion is that the shortage thesis is wrong.

I’m not so sure and I checked their findings with our Chief Economist, Lee Hopley. Her response was straightforward - "I’ll see Birmingham University’s supply statistics and raise them some demand side facts".

Lee pointed to an EEF survey on the modern manufacturing workforce published earlier this year which showed:

• Over the next five years a massive 69% of manufacturers expect to be facing problems recruiting production-related engineering skills.
• Over a third are not confident that they will be able to find the design skills and technical skills they require for their R&D activities.
• Managers for manufacturing operations are also expected to be thin on the ground, with 25% of companies expecting to have difficulties recruiting them in the next five years.

Are manufacturers concerned? Yes. Another survey showed that for 62% of EEF members, difficulties in attracting and retaining the right skills poses one of the biggest challenges to growth over the next twelve months.

As ever, looking behind the headlines the real story is never quite so straightforward.

UK manufacturers are innovative, customer-driven and globally focused. Their competitive strength hinges on their design and development capabilities, quality and customer service. The breadth of these activities, many of which are carried out in the UK and central to our broader economic recovery, needs a host of specialist science, engineering and technical skills. But the pipeline of young people with the right STEM foundations and an awareness of the opportunities that a career in manufacturing can offer has diminished over the past decade.

If we are to succeed in rebalancing our economy we have to do much, much more to reverse this trend.

Is government regulation costing you money and time, causing you hr headaches or resulting in lost orders? Between 2002 and 2010, the cost to UK business of the annual flow of new regulation more than doubled from £5bn in 2002 to £11.5bn in 2010.

In tough economic times we need to ensure that regulation is kept to a minimum and is as well-designed and sensibly implemented as possible.

The ‘Red Tape Challenge’ (RTC) is an opportunity for business like yours to get involved and start addressing the issue and shape a better business environment. It’s a government initiative that invites businesses to tell them which regulations are not working and how they could be improved.

Manufacturing will get out of this exercise what it puts in. We can see it as a gimmick and sit on the sidelines or get involved and generate ideas.  We will be taken most seriously if we submit a considered and focused body of evidence.

EEF wants to do its bit. Our Chief Executive, Terry Scuoler, is acting as the ‘sector champion’ for manufacturing. In this role he is promoting participation in the RTC and working to ensure that manufacturers’ views are taken seriously.

We are pulling together issues from across our membership and beyond to demonstrate the breadth of regulations weighing down on UK manufacturing. A consolidated body of evidence will help give maximum impact to the industry’s concerns.

If you are a manufacturer whose business is being undermined by regulation, let us know and we will champion the issue on your behalf. Send a description of the issue and the regulation causing it to redtapechallenge@eef.org.uk 

This article was originally published on our Economics Blog.

We’ve received a steady stream of enquiries from members over the last few months about the Bribery Act. This new UK bribery law is due to come into force on 1 July and it’s clear that many businesses are struggling to come to terms with the full impact of its implementation.

The Bribery Act is a piece of criminal legislation creating a new corporate crime of failing to prevent bribery. Companies need to assess the risks of bribery throughout their operations and then implement 'adequate procedures' to control those risks. 

Companies will commit a new offence of 'failing to prevent bribery' if any employee or associate commits bribery with the intention of gaining a business advantage for the company, and the company failed to put 'adequate procedures' in place to prevent it. It does not matter if the company knew nothing about the bribery – the emphasis is on the procedures the company has in place, rather than its awareness of what was going on.

But what exactly will this involve? Is having an anti-bribery statement sufficient? How far do you need to vet your overseas agents? What about your supply chain? And what does the UK’s tough stance on bribery and corruption mean for 'routine' business practices, including corporate hospitality?

Is Government guidance on the Bribery Act enough?

The government has produced guidance on the Bribery Act, but it is not prescriptive.  The guidance is supplemented by 11 case studies, a surprisingly high number of which involve manufacturers.  Does this mean that manufacturers will be particularly under the spotlight? If so, then surely doing nothing in response to the Bribery Act - or adopting a wait and see approach - will be a risky policy.

Companies need to understand what compliance with the Bribery Act means in practice.

It's not easy for companies to access support from experts with both criminal and corporate governance experience. So with this in mind, we've partnered with Siemens Plc and corporate defence specialists Squire Sanders Hammonds to hold two half day seminars. They're particularly relevant to MDs, CEOs, Finance Directors and other board members, as well as people in your business who are responsible for auditing and compliance. I invite you all to join us there to explore how the Bribery Act will impact on our sector.

Delegates who attend will also be eligible for discounted access to a full compliance kit produced by Squire Sanders Hammonds, including an anti-bribery policy, a presentation to the board, a statement of intent to post on your web-site, an agents due diligence checklist and example clauses for third party agent contracts.

Our seminars are on 19th and 21st July - so there's only limited time left to secure your place - and your business.