The publication of the Beecroft report has not only succeeded in causing a massive rift between the Conservatives and LibDems on whether small companies should be able to easily sack their staff. It has also revealed the grounds on which the government decided to push back the auto-enrolment timetable for smaller businesses, and the depth, or lack thereof, of the arguments under which it was made.
The postponement of auto-enrolment has led to around 5 million employees seeing their staging dates delayed and all employees set to receive lower employer contributions for a longer period. Many attribute the impetus for that political decision to the until recently secret report from venture capitalist Adrian Beecroft, chairman of Dawn Capital. Publication of the report has left many commentators surprised at the lack of detail, given the extent of the work that had gone into building the autoenrolment consensus.
Beecroft’s actual recommendations were that micro-businesses with less than five employees should be excluded from the auto-enrolment scheme. He said that this would require an amendment to the Pensions Bill, which is currently going through Parliament, and also wanted businesses with between five to 10 employees to be given the right to opt out of auto-enrolment.
To the casual observer, Beecroft’s argument stacks up. The DWP expects auto-enrolment to cost around 60,000 jobs, we learn, adding around 0.25 per cent to the unemployment statistics. Overburdening small businesses is stopping them employing more people, goes the logic. Better to have a job and no pension than no pension at all is an argument that has been knocking around the debate over employers’ covenants on DB schemes for some time.
Breaking the universality of autoenrolment would both add expensive complexity to the system and strip it of one of its mostimportant messages, that we are all in this together, (except for the self-employed, that is)
The government’s own impact assessment suggests that of the 60,000 jobs that will be lost as a result of autoenrolment, most will be in hotels, restaurants and manufacturing, says Beecroft.
Excluding micro-businesses would remove 5 per cent of the workforce from auto-enrolment, although a higher proportion of the employees of such businesses are likely to have no pension at all. And that 5 per cent of the workforce happen to be around 1.2 million of the 9-10 million target market of auto-enrolment. Factor in Beecroft’s proposal that employers of up to 10 staff be allowed to voluntarily opt out of autoenrolment, and you are getting to a stage where a considerable chunk of the target market is excluded.
Beecroft on the other hand points to Paul Johnson’s review of auto-enrolment for the argument that for low paid employees the benefits of swapping current earnings for future pensions that are likely to reduce means tested benefits are marginal at best. But breaking the universality of autoenrolment would both add expensive complexity to the system and strip it of one of its most important messages, that we are all in this together (except for the self-employed, that is), says Tom McPhail, head of pensions policy at Hargreaves Lansdown.
McPhail says: “Self-employed and those not working aside, auto-enrolment carries an important message about universal suffrage. The message from the government is that people should be doing this. If that message becomes only some of you should be doing this, it will become considerably less powerful.”
One argument against excluding micro-businesses which the Paul Johnson review apparently found persuasive is the idea that if there is a break point at whatever number of employees then employers would be deterred from growing beyond that size. Beecroft said: “I do not find that a particularly compelling argument as the current proposal clearly deters one person businesses from hiring anyone, which is the most important step in growing a business. It is of course true that if there was a minimum business size to which the scheme applied there would need to be a way of dealing with businesses that shrunk from above that size to below it.”
David Robbins, senior consultant at Towers Watson does not buy this argument. He says: “Beecroft does not really deal with the criticism of the cliff edge, that if you have five employees, taking on one more means you have to pay pension contributions for six of them. He just says that is not as important as the general idea that employers will be able to take more people on if they do not have this burden.”
Eyebrows have been raised at the brevity of the report’s pension section. McPhail says: “The Beecroft report does seem to have been compiled with relatively little reference to the existing body of information that has been gathered through the consultation process. This is clearly a political decision not a pensions one, and Beecroft was pushing at an open door. Cameron is frustrated at the slow pace of reform, particularly in the civil service, and along comes Beecroft with a way of legitimising doing something.”
The outcome is some employers have welcomed the delay to the timetable. Whether the nation as a whole should rejoice at this delay to a sorely needed reform is another matter.