ET fees: how to find Sadiq Khan £20 million

With Labour shadow ministers and policy wonks seemingly too scared of their own shadows to find a place in their ‘better economic plan’ for their party’s employer-friendly policy pledge to at least substantially reduce the Coalition’s employment tribunal fees, now seems a good time to revisit my April 2014 attempt to set out a fiscally credible means of delivering on that pledge.

Since April 2014, we’ve learnt a fair bit about the level of fee income to the Ministry of Injustice, and the operational cost savings to the Ministry resulting from the steep decline in claims/cases since July 2013. Fee income (net of fee remission) is running at £8.8 million per year, and gross annual expenditure on the employment tribunal system has fallen by £14.4 million, from £86.7 million in 2012/13 (the last financial year before fees), to £76.3 million in 2013/14 (when fees were in force for eight months of the financial year), and £72.3 million in 2014/15. So, assuming for one moment that outright abolition of the fees regime would return the number of claims/cases to pre-fees levels, such abolition now appears to carry a price tag of some £23.2 million per year (£8.8m + £14.4m).

However, it’s very unlikely that outright abolition of the fees regime would return the number of claims/cases to 100% of its pre-fees level, for the simple reason that claim/case numbers had been in slow but steady decline for several years before the introduction of fees in July 2013, and that downward trend would most likely have continued had fees not been introduced. In other words, some – perhaps as much as 15 per cent – of that £14.4 million reduction in operational costs would have happened anyway. Furthermore, the figure of £14.4 includes efficiency savings made within the ET system unrelated to the impact of fees. So, as precision is not really available to us here, let’s just say that the actual price tag associated with outright abolition of the fees regime would be more like £20 million per year.

Now, many will say that £20 million is a piddling sum, and in one sense they’re right: it’s just 0.3 per cent of the Ministry’s overall annual budget of £6.8 billion. But there’s ample evidence that any incoming Chancellor and Justice Secretary would take a different view. Money is going to be very tight under the government elected on 7 May (or, the government undemocratically constructed by political horse-trading in the days following 7 May). In any case, it’s pretty clear that Labour’s policy pledge on fees does not amount to outright abolition (and all that the Liberal Democrats have said so far is that they’d conduct a review). So, it’s more realistic to assume that fees will remain in some form, and to set ourselves the task of constructing an alternative fees regime that would restore access to justice, while covering at least some of that £20 million.

To my mind, that implies no more than nominal fees for claimants. In April 2014, I suggested flat-rate issue and hearing fees of £50. And I argued that, with the advent of state-funded early conciliation of potential claims by Acas, there’s a perfectly sound case for employers having to pay similar fees to defend a claim that they have failed to resolve via Acas. If the number of single claims/cases rose to just 30,000 per year – almost double the current rate of 17,000 per year, but still well below the 54,700 in 2012-13 – such fees would generate £3 million per year in issue fees and, assuming 20 per cent of cases went to a hearing, a further £600,000 per year in hearing fees.

Alternatively, if the number of single claims/cases rose to 40,000 per year – more than twice the current rate of 17,000 per year, but still 27 per cent down on 2012-13 – such nominal issue and hearing fees would generate a total income of £4.8 million per year from single claims/cases.

In April 2014, I also suggested that each claimant in a multiple claimant case pay nominal, flat-rate but reduced issue and hearing fees of £25, and I see no good reason to resile from that view. If the number of such claimants increased to 60,000 per year – double the current rate of 28,000 per year, but still well below the 136,800 in 2012-13 – that would generate another £1.5 million per year in issue fees and, assuming (perhaps conservatively) that 50 per cent of such claims would go to a hearing, a further £750,000 in hearing fees. To that we can add £225,000 in issue and hearing fees (of £50 each) from the 3,000 defending employers, making some £2.5 million in total.

Yes, that amounts to only £7.3 million at most (assuming 40,000 single claims/cases). But those figures are based on scenarios in which claim/case numbers would rise from their current low level, but still remain well below their pre-fees level. In which case, the price tag associated with such a modest fees regime would be much less than the £20 million cited above. And, in the event that claim/case numbers rose to just below their 2012-13 level (say, 50,000 single claims, and 100,000 multiple claims in 5,000 multiple claimant cases), my nominal fees regime would then generate a total fee income of £10.1 million per year (which, you may remember, is what Ministry officials said in 2012 would have to be raised by any alternative regime to their own).

Of course, that would still leaves us £9.9 million short on our £20 million. But the final element of my April 2014 proposal was a ‘polluter pays’ penalty for those employers found by a tribunal to have breached the law – that is, those employers that create the need for an employment tribunal system. Each year, about 12 per cent of all claims are successful at a hearing or result in a default judgement in favour of the claimant. And, if claim/case numbers rose to just below their 2012-13 level, as described in the previous paragraph, there would be about 6,500 losing employers. Imposing a penalty of £1,000 on each of those losing employers – a hefty sum, for sure, but still less than the £1,200 some claimants have to pay in fees now – would generate an income of £6.5 million.

But your name is Sadiq Khan or Ed Balls, and you’re still fretting about another £3.4 million. So increase my ‘polluter pays’ penalty to £1,500. Why shouldn’t employers found by a tribunal to have acted unlawfully make such a contribution to the overall cost of the tribunal system? They would have had ample opportunity to settle the claim by that stage, including through early conciliation by Acas.

There are, of course, any number of ways in which my proposed nominal fees (plus ‘polluter pays’ penalty) regime could be tweaked, but the essential point is that it is entirely feasible to construct a regime based on very low level claimant fees that would nevertheless cover most if not all of the increase in operational costs associated with the inevitable increase in claim/case numbers.