21 juli 2023 Louise Mason EmploymentLinks

The future of ethnicity pay gap reporting

Four years after the consultation closed, the government has issued a response to its ethnicity pay gap reporting consultation.  The conclusion, which had been widely trailed in discussions about the Inclusive Britain report and during publication of the voluntary reporting guidance, is that “the government will not be legislating to make ethnicity pay reporting mandatory at this stage”.  This outcome is at odds not only with the premise of the consultation (which focussed on how and not whether to report), but also with the opinion of business organisations and industry bodies (as discussed in this blog).

Rationale for the decision not to make ethnicity pay gap reporting obligatory
The reason cited by the government for its decision not to make ethnicity pay gap reporting mandatory is the “genuine difficulties in designing a methodology that produces accurate figures that allow for interpretation”.  In other words, for reporting to be meaningful, statistics must be both accurate and intelligible. 

The government singled out the following issues as being particularly problematic:
 
  • Lack of ethnicity data held by employers: The government cites a 2020 survey conducted by PwC of 100 organisations.  This found that almost 35% did not collect any ethnicity data and, almost half of those who did collect data, were unable to publish a pay gap due to poor or insufficient response rates.  However, it is worth noting that the same report records that, at the time of publication, significant progress was being made, with the number of companies calculating their ethnicity pay gap having increased from 5% in 2018 to a projected 33% in 2020.
  • Binary reporting provides an inadequate data set: One of the options proposed in the initial government consultation was to produce a single binary ethnicity pay gap figure, comparing average hourly earnings of minority ethnic employees with those of white British employees.  In the absence of adequate ethnicity declaration rates, the government states that the use of binary statistics, as an alternative approach to more detailed comparisons, is liable to mask significant variations between different ethnic groups.  
ONS statistics show that there can be wide variations within broader minority ethnic groups.  An oft-quoted statistic is the differential between the average hourly pay rate of Indian employees (around 16% higher than that of white British employees) and the pay rate of Bangladeshi employees (around 16% lower than that of white British employees).
 
Interestingly, analysis of the feedback received in the consultation shows that almost 80% of employers and business representative organisations considered that a binary figure should be produced, either as the sole statistic, or as part of a set of more detailed statistics.

 

  • Small sample sizes leading to unreliable data:  The government also considers that there are problems in reporting more granular information.  It notes that reporting detailed statistics runs the risk of results being skewed by particularly large or small pay values because of low numbers of individuals within certain ethnic groups.  It is not possible to produce reliable statistics when data is based on too few values.  There is also a risk of losing anonymity of individuals.  The outcome noted that because of the uneven geographical distribution this problem could be more acute in certain areas of the country, such as Wales.
A surprising outcome

The conclusion of the consultation is surprising when set against the consultation responses.  More than 90% of employers were supportive of ethnicity pay reporting, viewing a requirement for increased transparency as an opportunity for employers to gain a better understanding of their workforce and to develop action plans to address inequalities.  Over 75% of respondents already collected ethnicity data based on either the 2011 or 2001 ONS Census categories or other ethnic classifications.  There was also a majority view that mandatory reporting should apply to employers with 250 or more employees.  

In many respects, these responses show a more encouraging picture of employer readiness to report than the picture presented in the 2015 consultation on gender pay gap reporting.  At the point of consultation, only 62% had sufficient data to be able to calculate an overall gender pay gap figure.  

Given how far the narrative on diversity, equality and inclusion has progressed since 2019, it might have been thought that the responses to the consultation would be interpreted as a green light for a mandatory reporting obligation.  Instead, the government has focussed on a small number of obstacles and opted to keep ethnicity pay gap reporting as a voluntary exercise.

Driving change

Pay reporting can be something of a blunt instrument.  However, as has been seen with gender pay gap reporting, it has the effect of shining a light on disparities.  For now, the government’s change in direction on ethnicity pay reporting seems to be mirrored in the number of employers choosing to report, which appears to be in decline.  It remains to be seen whether the government’s guidance for employers wishing to report voluntarily will have the effect of promoting more reporting.  For now, ethnicity pay gap reporting as an initiative appears to have stalled.