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Communities and Partnerships Overview and Scrutiny Committee Meeting to be held on Thursday 18 January 2007 Part 1- Item No. 3 Electoral Division affected: All Short-Term Contracts of Employment Contact for further information: Stephen Dean, 01772 551888, Economic Development, LCDL/OCE Executive Summary There are economic benefits to short-term contracts, however there is a risk that both economic and social costs more than offset these benefits. Lancashire is recognised as a higher than average user of short-term employment contracts and their use is particularly high in the public sector nationally. Recommendation It is considered that the primary area to focus upon is the broader worklessness agenda that tackles the core problem and not potential incidental issues. The County Council is directly engaged in addressing the worklessness agenda on a number of fronts. Continued focus on this is recommended. Background Introduction The Communities and Partnerships Overview and Scrutiny Committee 2006/07 Work Plan includes an item on short-term contracts. The Committee requires a report on the social and economic impact of the lack of security of employment for a large number of people in Lancashire. This report should also seek to consider what is being done to address the impacts of short-term contracts of employment. Shortterm contracts are effectively fixed-term contracts and include temporary employment. Short-Term/Fixed Contracts of Employment The Fixed-Term (prevention of less favourable treatment) Regulations 2001 are aimed at preventing less favourable treatment of fixed-term employees. No minimum limit as to what constitutes a fixed-term employee has been set, so it could include employees on very short-term contracts. The DTI indicates that around 1% (250,000) of the workforce are on very short-term contracts (less than 3 months). -2A temporary worker, if employed for long enough (generally over 12 months), even through an agency, may be able to claim permanent status and if so will be entitled to compensation when the employment comes to an end. These regulations came into force October 2002. National Context In response to the above legislation in October 2002, the Department of Trade and Industry commissioned a report on the growth of Fixed-Term Contracts (FTC). Based on information from the labour force survey it was estimated that the number of people working on FTC in the UK is between 1.1 and 1.3 million. The report concluded that FTC employment showed an increasing trend and that the public sector uses proportionately more FTC than the private sector. The public sector also accounts for over 70% of fixed termers who have been in their jobs for over two years. The report also highlights that 54% of temporary employees are women and that members of ethnic minorities are more likely to work on a temporary basis than white employees. The report suggested that in general FTC’s suit both the employer and employee and help promote a flexible labour market, which allows the economy to adjust more rapidly to changes in demand and reduce skill mismatch. The changes in protection through the 2002 legislation could make job seekers less inhibited about taking on fixed-term work, knowing that their rights are secured. One important part of the legislation was removal of the redundancy waiver. This now means that employees of over 2 years duration may not be forced to sign away their right to redundancy payments at the end of their contract. Also once a temporary worker has reached 12 months employment, possibly even through an agency, they have employment protection rights covering unfair dismissal and redundancy for example. Lancashire The statistical evidence at a sub-regional and district level is not comprehensive and trends or ‘hot spots’ are difficult to comment upon due to sample size. However, Lancashire is traditionally thought of as having above average numbers of people working on a short-term or temporary basis, in part because of the structure of many of the industries in the area. For example, the Lancashire coastal resorts, including, particularly, Morecambe, produce significant numbers of seasonal employment related to the Tourism sector. Elsewhere in Lancashire there is an above average representation of businesses that, by their nature of fluctuating demand, also have a need for the short-term, temporary workers. Examples include the horticultural sector in West Lancashire, mail order/home shopping, contract packaging activities, security and industrial/officer cleaning. There is also a registered demand in tour operators and some clerical occupations in a number of government agencies such as the Department for Work and Pensions. Furthermore it is notable that many parts of Lancashire have flows on and off the unemployment register that are significantly higher than those nationally. This is a -3reflection, in part, to of the prevalence of lower value-added activities with a higher demand for a flexible workforce. Many people in Lancashire find it relatively easy to get a new short-term job and thus leave the unemployment register, but then rejoin it again fairly quickly. This is one of the reasons why Lancashire has relatively low rates of long-term unemployment compared with national statistics. This is in addition to the labour-intensive nature of a significant part of local economic activity. The numbers of people recorded as, ‘employed by an employment agency’, has increased by 46% to 9,000 in Lancashire over a seven year period. This compares with a 14% increase nationally over the same period. Reliable statistics for the County are difficult to obtain, however it is estimated that Lancashire has 25,000 flexible workers. Economic Impacts Whilst the DTI suggest that generally short-term contracts benefit both the employer and employee, the legislation in 2002 indicates concern at some imbalance in benefit. Equally, the negative impact on losing trained and skilled individuals at the conclusion of a short-term contract is recognised by the business community. There is therefore less reliance on FTC’s in the private sector. However the ‘try before you buy’ opportunity is a positive aspect and one which may increase the opportunities to support active job seekers. The most significant economic impact seems to arise from: 1. Low and irregular incomes causing problems with obtaining a mortgage 2. Restrictions on benefits, firstly due to timing as benefits are not paid immediately when a contract ends and secondly with repayment often being demanded on commencement of a new short-term contract 3. Tax coding tends to be continuously on an emergency basis, usually resulting in a short-term overpayment of tax 4. Insecurity in employment increases pressure to relocate and reduce skills resource in an area. Social Impacts The social impacts are less tangible and difficult to evaluate. However, the pressure to move area to capture short-term employment does not support communities. Equally, these pressures may also require family units to live apart to take advantage of immediate opportunities. Where an individual resists these pressures, there is a tendency for longer periods of worklessness and possibly increased claims for incapacity benefit or other benefits. It should be noted that many people enjoy the flexibility of temporary working and this was particularly highlighted by the DTI. Where the disruptive nature of short-term contracts increases worklessness, there is a direct link to health and broader welfare issues. Although this impact is of considerable importance, not all can be attributable to flexible working. However the Index of Deprivation 2004, when comparing Lancashire in absolute terms to Liverpool, is not severe, there are significantly greater impacts relatively on health. On key measures such as life expectancy, disability, mental health and low birth -4weights, Lancashire has much poorer outcomes than might be expected merely on evidence of deprivation alone. Low wage and temporary employment are contributory to these equations and therefore tackling all of the factors takes on even greater importance. The core underlying issue remains the high prevalence of poorer quality (low value added) economic activity and opportunities in the County. The latest Gross value Added (GVA) figures released in December 2006, show Lancashire GVA per head is 85% of the UK average (83% if you include the Unitary areas). Clearly the issues and consequences of flexible and casual working are likely to remain an important area to focus on for the immediate future. Tackling the issues Agency Actions Job Centre Plus Increased focus on reducing worklessness with targets set for incapacity benefit claimants Increased focus on worklessness agenda in the Regional Skills Strategy Regional model includes specific business support in disadvantaged communities. Strong focus on ethnic minorities and women for example. Regional Economic Strategy 2006 has a vision of high employment rates and elimination of low employment. Local Area Agreements, Local Enterprise Growth Initiative. Strong focus on permanent sustainable employment working with disadvantaged communities Excluding temporary staff working in schools the County Council spends £6 million per annum on short-term temporary contracts. This is currently being reviewed under the Lancashire Efficiency Initiative (LEI) Under the equality and diversity agenda a number of initiatives are being explored to meet performance targets across all Directorates. These initiatives focus on ethnic minorities and disabled people where current information indicates a higher than average number of shortterm temporary contracts of employment Learning and Skills Council Business Link North West Development Agency Lancashire County Council Lancashire County Council Lancashire County Council -5Key Challenges There are commercial and operational benefits in both the public and private sectors that encourage and support short-term contracts. These include staff flexibility, project delivery, cost efficiencies, cash management and family/life balance. Whilst recognising such benefits, it is increasingly appreciated that there is a counter balance of both social and economic problems including loss of skills and mortgage constraints. Management of this balance may possibly only be effective with a focus on tackling worklessness rather than short-term contract issues. Therefore it is suggested that the key challenges for the County Council and partners are as follows: 1. Ongoing review and management of short-term contracts of employment within the County Council (lead: Corporate Personnel) 2. Ongoing development of programmes to tackle worklessness in the Lancashire Local Enterprise Growth Initiative (lead: Lancashire County Developments Ltd (LCDL)) 3. Develop initiatives to support the County Council’s Equality and Diversity agenda (lead: Corporate Personnel supported by LCDL) 4. Develop cross cutting themes under LAA with vulnerable neighbourhoods for example. (lead: LCDL and Adult and Community Services/Safer and Stronger Communities LAA block). Advice Discussions held with and information provided by Corporate Personnel, Legal Services, LCDL and Planning Economic Intelligence. Summary of comments have been incorporated in the report. Alternative Options to be Considered None recommended Implications None Local Government (Access to Information) Act 1985 List of background papers. DTI Fixed-Term Employees (Prevention of Less Favourable Treatment) Regulations 2002. Report available at: http://www.dti.gov.uk/employment/employment-legislation/employmentguidance/page18475.html)