Luke Johnson and Michael Lorimer gave evidence.

Good afternoon. Thank you very much for coming along. Would each of you introduce yourself, please?

Luke Johnson:

My name is Luke Johnson. I have been an entrepreneur and investor for the best part of 40 years, and I am currently the co-owner and the director of various businesses employing roughly 10,000 people.

Michael Lorimer:

I am Michael Lorimer; I am the chief executive of the DCS Group. We employ about 600 people. We are in the fast-moving consumer goods sector, and we have the world’s biggest non-food clients. When you buy shampoo, shower gel or Fairy liquid from a convenience store or a discount retailer, we have probably distributed it and indeed made some of it, because we have a manufacturing division as well. That is quite unusual, I think—for a distribution business to actually invent a manufacturing business—in the last 10 years. We are based in Oxfordshire and Redditch, in Worcestershire.

Q Good afternoon, gentlemen. This is a far-reaching Bill. We have heard from the Government and from other witnesses that there is potentially a £5 billion cost to the economy associated with it. Others have suggested that that might even be a small c conservative estimate. From the perspective of your business interests, what is the likely impact of this Bill on the bottom line economically, as well as to overall job numbers in the economy?

Luke Johnson:

I think you need to put it in context. From my various decades of creating businesses and jobs, I would say that we now have among the highest ever levels of tax burden and of overall regulation and legislation, and that this is a high-cost country. Job vacancies have been falling for at least 15 months. Unemployment is going up. Interest rates are massively higher than they used to be. Insolvency specialists tell me that they are rubbing their hands because they think that next year will be very busy. I would say that even if we do not suffer a technical recession next year, it is odds-on that there will be a serious slowdown. I am at the cutting edge of businesses, and, in some cases, some of my companies might not survive next year. I do not know how many Committee members have ever been involved in starting and growing a company and keeping it from failing, but it is not much fun.

The idea that now is a good moment for small and medium-sized businesses—which, let’s face it, are the future; they are the ones that disproportionately innovate and, actually, disproportionately create most of the jobs. They are the ones that are the next big businesses; every business started as a small business once. On the idea that companies that can barely afford any form of HR could stomach a big new Bill of 150 pages and 28 measures, they will not even have time to read it. The idea that they can adopt something like this when they are facing quite possibly—we have to remember that they have the hangover of two years when so many of them were shut. They have legacy debts and energy prices. Electricity prices in this country are the highest of any developed nation. Try manufacturing things here now. The timing of this is beyond belief, and that needs to be put into context. Whether £5 billion is the real cost or not, it is death by 1,000 cuts because you never know until you get a big tribunal what the real cost is, for example.

Michael Lorimer:

I agree. Obviously, a Bill like this does not exist in splendid isolation if you are running a business. Luke has identified the increased costs of doing business, which are severe and impact small to medium-sized enterprises most, which, as you will be aware, represent 80% of the employment in this country. There was the news yesterday about the White Paper, “Get Britain Working”, and as a top line, I am very supportive of that. I think that is absolutely brilliant. Getting 2.8 million people back into work is something I am very passionate about. In Banbury, we are beside an area of deprivation, with a lot of people on benefits, and a lot of young people who are feeling quite depressed about life. We would love to be offering those people jobs—I cannot emphasise that enough. For six months of the year we have temporary staff coming in, and we are very glad they come—they come from different countries, work very hard and do great work for us.

My concern, without being able to give you a number on it, is that for some of the riskier hires that might come from the areas around where our business is based—in other words, people not in education, employment or training, kids who have not worked before, or people who have been unemployed for a long time; you hear on the radio every day that people in their 50s cannot get a job—businesses will be very slow to take a risk because of the day one legislation that is coming down the track. We have an HR department, so we can deal with this to some extent, but as you slide down the road and find businesses that employ maybe less than 20 or 10 people, there will be deep concerns and perceptions that this is just too expensive and scary.

I was hugely encouraged by the White Paper—I think the top-line aspirations are absolutely the right ones. It is the same direction of travel, towards 2 million jobs, that the Jobs Foundation have published a report on this week, and that the Centre for Social Justice are focused on. I would exhort all of you politicians, regardless of your colour, to get behind the concept of getting Britain working. But my fear is that this torpedoes a lot of those plans—genuinely, that is my fear.

Q I certainly recognise the picture you paint of Banbury; it is very close to my constituency and I am sure you have people from Buckinghamshire on your payroll. What modelling and projections have you done—on the presumption that the Bill becomes law and obtains Royal Assent at some point next year—on employment numbers in your businesses?

Luke Johnson:

We are still grappling with the fallout from the Budget. There are millions of pounds of additional tax that some of my companies will have to pay, and a 6.7% increase in the national living wage, when average inflation is 2% or 3%. As for the idea that many businesses have already given deep thought to this new piece of 150-page legislation—when we already have such things as the Employment Rights Act 1996, the Equality Act 2010, the Health and Safety at Work etc. Act 1974, and many other pieces of legislation—I dare say that large companies have given it some thought, but most of the businesses I am involved with are not so big. I think they will wait and see what the final result is before trying to measure whether it leaves the business smaller.

With any piece of legislation like this, we have to remember that it is not just the current jobs affected, but the unseen jobs and opportunities that were never created. I urge you to look at the fact that, for the first time in many years, the number of businesses being created in this country has been falling or stagnant for five years. That is more or less the first time in decades. If we lose the full employment we have enjoyed and the enterprise economy that we have managed to create—I believe it to be much more fragile than some might believe—it will be incredibly hard to get back. Jobs do not just fall from the sky. They appear because companies are created by risk takers, and they take a risk with every job they create. Jobs only exist because they are helping that business to progress, and 80% of jobs are nothing to do with the Government—they are private sector. If you crush the private sector, you crush jobs. All the research shows that the single most important ingredient for a happy society is jobs. Without jobs, you do not have civilisation.

Michael Lorimer:

Our turnover is in the public domain, so I can share it with you. We will probably turn over about £370 million this year. We are in a high-turnover, very tight-margin business, so if we make £10 million net, that is about the height of it. It is very difficult to estimate the increased cost of national insurance contributions and the national living wage, because not all the details are yet clear, but we think it will be somewhere between £1.5 million and £1.8 million. That is quite a big chunk out of our net profit.

We do not have a huge problem with it. We are a company that believes strongly in creating prosperity. The national living wage is something that our hearts have no problem with, because we would like to see people getting paid correctly, but we have to mitigate that. That is something that we just have to get on with. Our company has grown successively every year since it started 30 years ago, in top line, bottom line and people numbers.

I need to stress this again to you: the passion that we have is growth and job creation. When we see people coming into the business, working their way through it, earning more money, developing their career and prospering, that is what brings us the greatest joy of all. My concern, which I have to repeat, is that businesses smaller than ours—following on from Luke’s point, we were a small business at one stage—are going to find it very hard to get on that growth trajectory.

Q Good afternoon. A number of witnesses, including many from the business community, have welcomed the intention behind the Bill to increase workplace protections. Do you feel that the current employment law landscape is too favourable to employees, too difficult for employees or about right?

Michael Lorimer:

From my perspective, there is a pretty good balance between employer and employee at the minute. I am sure you could unpick that, and there could be cases for either side, but as somebody who runs a business in, quote unquote, a “fast-moving environment”—in fact, Luke Johnson’s business is much faster-moving even than ours—where you are focusing on driving your business and trying to get results, I think that there is actually a good balance. I am not particularly in favour of tinkering too much with it. That is my personal view.

Luke Johnson:

I would slightly differ, in that I think some areas are increasingly onerous for employers. Increasingly, when I talk to entrepreneurs, they are looking to outsource, offshore or automate rather than employ people. Not all of that is legislation and regulation; post furlough and lockdowns, there is a vast amount of talk among employers and owners of businesses about workforce motivation. That goes back to a point that Michael made earlier about the number of people not in work who are of working age and able-bodied. I think this is an issue for society as a whole, and I think a happy society is one in which people are productively occupied.

I am surprised that you say that many employers want greater protections for their staff. They are very entitled to give them to them if they want. They do not need to rely on the Government for that; they can just give them better contracts if they want.

There are a number of concerning aspects to the Bill, which could be counterproductive if the objective is higher living standards. As I understand it, this Government’s priority is wealth creation, prosperity and jobs. Ultimately, although I do not believe that this legislation will be devastating to employers, I think it will be damaging for job creation and therefore counterproductive to wealth creation and to achieving higher standards of living.

Q I am glad to hear that you share my concerns for small and medium-sized enterprises. As you have probably all noticed—it is in my declaration of interests—I have run a small business both here and on the continent for most of my adult life, so I feel for them. It was the first thing that came up once I started to read the Bill.

You mention that you are concerned about day one rights. I wonder about the changes in the probation period. We seem to be in agreement that it might affect where you draw your prospective employees from. Can you suggest any amendments to the Bill that might encourage the entrepreneurial small businesses we so rely on to continue to take on staff from areas of deprivation or the long-term unemployed—those who currently struggle to get work?

Michael Lorimer:

I was at a breakfast yesterday morning for the launch the Jobs Foundation’s report, “Two Million Jobs”. A chap from Sheffield spoke who runs an organisation that gets young people into work. He gave the example of a kid—I cannot remember his name—who would not normally find it easy to get a job interview. They trained him and helped him to get the right attire to get him into a job. The point was that this guy looked very risky—he had not worked, and he came from a long line of people who had not really seen any value in work—but he got the job because the people interviewing him saw something that they thought was worth working with. They knew they were taking a risk; they did. He has turned out to be an absolutely superb kid and is now progressing well.

Equally, yesterday I spoke to a friend of mine, a CEO of a business, who had somebody who interviewed incredibly well, did very well for the first 12 months, got promoted and at month 13 or 14 became an absolute monster to manage. Under the two-year rights, they were able to sort that out.

As we all know, you can get the interview stage right or wrong with hires. For SMEs, you just need to give comfort and space that hopefully they will get the right hires, but that if they do get the wrong hires and it is not the right fit, there is an escape route. Personally, I do not want to put a time on that. Our system works well for us at the minute, but I am sure Luke might have an opinion.

Luke Johnson:

I find this a big piece of legislation, by my standards: 150 pages is probably what you are used to, but as someone running a business who has 1,000 other things to do than read a 150-page piece of legislation about employment, I find the whole thing rather a surprise. The Prime Minister said that he wants to

“rip out the bureaucracy that blocks investment”.

If there is a genuine belief in the Government that this legislation will boost investment, I have a bridge to sell them.

Q I apologise to the panel for returning to an earlier dispute in this quite disjointed way, but just for the record, earlier this week one of our witnesses, Paul Nowak, said:

“I do not think there is a direct link; you do not pass a piece of legislation and trade union membership and collective bargaining go up”.––[Official Report, Employment Rights Public Bill Committee, 26 November 2024; c. 67.]

Another witness, Mick Lynch, said that personally he hoped to see 50% collective bargaining coverage. That is compared with 39% now. It seems like thin margarine to me and certainly not a unionisation of the economy, but there we go.

My question to the panel is the same question that was put to employers’ federations earlier this week. We all understand the points that you have made, but are there specific measures in the Bill that you welcome?

Michael Lorimer:

No.

Luke Johnson:

No.

Michael Lorimer:

I am not trying to be contrarian, but I think Luke’s point is a very good one. There are 150 pages and 28 new measures, or whatever it is. Apart from anything else, it is an administrative burden. I welcome the White Paper hugely, but there is nothing in here that I am excited about.

Luke Johnson:

I will give you an example of one very specific issue that may arise that I do not think has been thought through properly, and its unintended consequences. There is an adjustment to collective redundancy rights. This would, I guess, normally apply in a business that is going through a very severe restructuring and possibly an insolvency.

What happens in an insolvency is that a buyer can keep that business alive and keep a chunk of the jobs, at least, from going by buying it out of administration. The one thing that goes through an administration is the TUPE rights of the employees. If you are only buying a small portion of that business, normally you can carve out only TUPE rights relating to the staff of the bit you are buying—let us say that it is several divisions, departments or whatever. As I understand it, this will tighten that, as proposed, such that almost any buyer of any part of that business will face the TUPE rights of the whole workforce. The unintended consequence will therefore be that parts of a business that were good and that could survive will not; they will be shut. The whole thing will be shut and all the jobs will be lost.

I do not think that whoever drew up that part of the legislation has fully thought it through, because it is in society’s interest that where businesses can be saved and rescued—I have been involved on both sides in those situations—they should be. It is always a great deal easier in certain respects to save a business that has failed because it had too much debt, or some other problem, than to start all over again from scratch.

Michael Lorimer:

Perhaps I should add that there are aspects of this that I am quite neutral or comfortable about. There are some things around bereavement, and so on, that are all good. I emphasise that my focus today is around the day one stuff and flexibility.

It is quite conspicuous that you are the first two witnesses, I think, who actually run businesses yourselves, and your evidence is rather different from much of the—

Luke Johnson:

Has any of the other witnesses ever created a single job?

I would have to leave that to them.

Michael Lorimer:

I did think, Nick, that we could have met in the endangered species part of the Natural History Museum, as business leaders.

Q Indeed. With not just the Bill, but the increase in employer’s national insurance contributions and things like the equalisation of the national living wage for young people—you also mentioned energy prices, Mr Johnson, which are a particular concern of mine—you sound very worried about the future of innovation, investment and ultimately jobs in this country. You have a platform today to send a message to the Prime Minister and all the Ministers who are involved in this legislation. What would that message be?

Luke Johnson:

I think there is a complacency about our current prosperity. There is this belief that jobs will always appear, that businesses will always invest and that living standards will naturally rise. It sometimes feels as if Britain is a nation running on fumes at the moment. We have large amounts of debt, certainly at Government levels. We have public spending projected to take, I think, 45% of GDP—a very high level compared with 10 years ago—and that crowds out the private sector. Interest rates, especially if you have to borrow from the bank, are pretty punitive.

As for the idea that we can continue to occupy the role in the world that we used to occupy decades ago, it is a dramatically more competitive place. There are dozens and dozens more countries where money can be invested, factories can be sited and jobs can be created. Many of them are much lower-cost than we are. They might argue that they have a hungrier workforce, or whatever it may be. No country has ever taxed and regulated its way to a higher standard of living. It feels as if that is what this Government are about. They need to get real about how prosperous economies are actually created.

Michael Lorimer:

If I were speaking to him, I would say, “Listen well to those who matter most.” To go back to the White Paper, you simply cannot create jobs without the private sector on board. You can listen to all sorts of people who will give you incredibly important stakeholder advice, but if you want to create jobs and grow the economy, the business community has to be on board. If we want to create prosperity, the private sector is where it is going to happen. I would say, “Listen well to those who matter most.”

Secondly, I would say, “Take your time and consult widely on this.” I feel that at the minute the consultation is not wide enough. We are here today: there are two of us speaking, broadly on the same message. Take time and do not rush it through for the sake of meeting a timescale. Take time and speak to business. Go out to the country and speak to small and medium-sized businesses and employer groups.

A lot of this stuff is not controversial. It is tick-box and—to go back to the first question—it is reinforcing a lot of stuff we do in the business anyway. We have 600 employees; at the minute I think we have three people in total on long-term sick, so we do not have a lot of problems. We have an engaged workforce and we are delighted to pay people well, at above the national living wage. All that stuff is about us trying not only to help our people to prosper, but to help our customers and the Banbury community to prosper. All this feels quite counterproductive and could have a lot of unforeseen consequences.

Q As the Minister says, we have heard from businesses and their representative groups, which have said that good employers have nothing to fear from the measures in the Bill; in fact, they welcome the level playing field to prevent undercutting. Given that the purpose of the Bill is to promote good-quality employment, what are the specific measures in it that you think do not contribute to that aim?

Luke Johnson:

It has already been raised, but if you introduce lots of rights like paternity rights and flexible working rights from day one, you risk having more problems, and that will be a cost. For example, there is a new obligation to protect employees from harassment. That sounds wonderful, but if you are in the licensed trade, as I am, that means that a single remark from a single customer could lead to a harassment claim for which you are responsible. How on earth are we to police that?

I do not know whether you are at all familiar with the state of the hospitality trade, but it is pretty dismal. We had two years where we were barely allowed to open; we have had unprecedented energy costs; we have higher rates; we obviously have all the costs for NIC and so forth from the Budget; and we have at best flat, if not declining, sales. I fear that hundreds more—if not thousands more—hospitality businesses will shut next year for good. That is obviously not the fault of this legislation, but it is petrol on the flames.

I suspect that a lot of the organisations you are hearing from are very large corporates with huge HR departments. In a way, they want to keep out new, young and innovative competition, because that is how big companies often behave. Building walls of regulation suits them, but that is not how you get a growing, vibrant and innovative economy. You get that through lots of smaller, younger businesses growing, coming up with new ideas and challenging the incumbents.

Q Michael, let me ask you the same question: given that the purpose of the Bill is to promote good-quality employment, what are the specific measures in it that you think do not contribute to that aim?

Michael Lorimer:

It goes back to what Luke said about a lot of this day one stuff. I do not want to paint a picture that we do not do a lot of this stuff already, because we work on the basis that if you recruit well and you train and develop well, you will not have as many problems down the line. But it is easy for us because we have an HR department and legal advice, so if we do hit the buffers we can deal with it. For smaller businesses—the entrepreneurial businesses that Luke mentioned—the perception, which of course is always stronger than the reality, is that it will create a lot of fear and concern.

I was in a shop recently and it took a long time for me to pay for a pair of Wellington boots. I said, “Are you busy?” He said, “No, but so-and-so left and we are not replacing him, because we’re very fearful. We’re a small business with two or three employees, and we’re anxious about what’s coming down the line.” You just need to be very mindful. That is where wide consultation comes in: you need to speak to people and see where the sore points are going to be.

I am afraid that that brings us to the end of this panel, because we are not allowed to go beyond 3.40 pm. Thank you both very much for sharing with us your knowledge and experience, based on your work as employers.