UK business groups call for mandatory reporting of ethnicity pay gap

A duty for large companies to publish the pay gap between staff of different ethnicities would be a straightforward step to tackle racial inequality in the workplace, according to UK business groups and economists who accuse the government-commissioned race report of downplaying the extent of problems in the labour market.

A storm of criticism greeted the report by the Commission on Race and Ethnic Disparities (Cred), after it concluded last month that the UK was not “rigged” against minorities and that “very few” disparities were linked to racism. But the main complaint from business groups was its failure to recommend a statutory reporting obligation of the kind in place since 2017 for gender pay disclosure.

The report said there had been a “broadly positive story” on ethnic minorities’ place in the labour market over the past 25 years, with “a gradual convergence on the white average in employment, pay and entry into the middle class”.

But Jonathan Portes, professor at King’s College London, said Cred had relied on “crude sleight of hand” in presenting statistics to back up its narrative.

A headline gap of 2.3 per cent between the hourly median pay of all minorities and white British employees hides a much bigger gap for certain groups — with those of Bangladeshi and Pakistani ethnicity at particular disadvantage, and black men suffering a far bigger shortfall than black women.

Alan Manning, a professor at the London School of Economics, said that after adjusting the data for personal characteristics such as age, qualifications and family status, there was “no evidence for pay gaps being smaller . . . than they were 25 years ago”, and that while the ethnic penalties for some groups had improved over time, “the overriding impression is of stasis”.

These persistent pay disparities partly reflect occupational segregation, with many ethnic minorities clustered in low-paid jobs with little chance of progression. Andrea Barry, an analyst at the Joseph Rowntree Foundation, notes Bangladeshi men are three times as likely as white British men to work as chefs and waiters, while Pakistani men are more than 10 times as likely to work as taxi drivers.

But they also reflect the barriers to career progression in professional life. Ethnicity pay gaps are largest in managerial, professional and skilled occupations — and when employers examine pay differentials within their organisations, they generally find ethnic minority employees are concentrated in frontline roles, and under-represented at senior level.

A growing number of employers — from law and accountancy firms to local authorities and large companies such as Sainsbury and Network Rail — now report ethnicity pay gaps on a voluntary basis.

Cred endorsed this voluntary approach, arguing that there were statistical “pitfalls” in trying to impose the framework used for gender pay to report outcomes for many ethnic groups.

However, business groups have repeatedly urged the government to introduce a mandatory reporting requirement, modelled on gender pay disclosure, arguing that practical difficulties can be overcome.

Matthew Fell, CBI chief UK policy director, said pay gap disclosure was “one of the most transformative steps a company can take to address race inequality at work”.

Peter Cheese, chief executive of the Chartered Institute of Personnel and Development, criticised Cred for a “missed opportunity” to press for mandatory disclosure, adding: “Racial equality at work is not just about participation in employment but also about progression into more senior roles. Pay reporting can highlight organisations and sectors where this is not happening.”

Sandra Kerr, race director at the charity Business in the Community, which has campaigned for mandatory reporting, said that while disclosure was not a “silver bullet”, it prompted companies to examine where people were sitting in their organisation, and was a way of “ensuring that the conversation is had at the top table”.

BITC has found that barely one in 10 large companies reports on its ethnicity pay gap voluntarily, and points to a sharp drop-off in gender pay reporting last year, when the pandemic led to a suspension of the usual requirement to disclose the pay gap between male and female staff.

The government consulted in 2018 on options to introduce a mandatory requirement, and has tested possible approaches to reporting with various businesses, but it has not yet taken further action. The Department for Business, Energy and Industrial Strategy said that it would respond to the consultation “in due course”.

Ethnicity pay reporting is more complicated than for gender. One issue is disclosure: many companies hold only patchy data because employees do not have to disclose their ethnicity and some are reluctant to do so — or unable to find a box to tick that matches their heritage.

A bigger issue is sample sizes. Ideally, employers would give a detailed breakdown of outcomes for different ethnic groups, but it is not always possible to do this while preserving anonymity. Cred argued that many employers recruiting from predominantly white areas do not have enough ethnic minority staff for a median pay comparison to be meaningful.

But business groups say these issues are manageable, if companies also put the headline figures in context and explain how they plan to close pay gaps.

Network Rail, for example, has published figures showing the pay gap for black employees is much bigger than for Asian colleagues, based on disclosure by 90 per cent of staff. With more than 100 nationalities among its staff, it collects more granular data to inform internal policy but does not publish figures where the sample size is too small to be reliable.

Sainsbury, meanwhile, has published figures showing that median pay for black employees is higher than for white colleagues — explaining that more black staff work in London stores with a higher pay weighting. Mean pay for black employees, who are under-represented at senior level, still lags.

Without an accompanying narrative of this kind, a pay report is “not worth the paper it’s printed on”, Kerr said.

The complexity of reporting ethnicity pay data is no reason not to report it, as Andy Haldane, the Bank of England’s chief economist, has argued.

“Published pay gaps are a starting point for corporate and national accountability and explanation, not an end point,” he said in 2019. “No single metric can perfectly summarise all dimensions of diversity. But publication of a single metric can, and has, served as the catalyst for an explanation and action.”