Employment regulation – more to come

The UK’s labour market has performed much better since 2008 than many expected. It is clear that, compared with the high degree of regulation in continental Europe, our relatively more flexible set-up has kept unemployment down and favoured significant employment growth in the private sector even as the public sector has been cut back.

But have our politicians learnt anything from this? I doubt it. Far from building on this strength they seem determined to undermine it. We have continued to increase regulation, partly to appease the European Commission (for instance in relation to the Agency Workers Directive), but mainly off our own bat.

This year a host of changes to employment law will occur, as is sadly the case every year. Irrespective of the content of these changes, keeping up with them costs businesses money as it adds to the scope and reach of the bloated human resources profession and keeps the wolf from lawyers’ doors.

Over the next twelve months we will see increased powers for employment tribunals to impose financial penalties on employers and to order equal pay audits. We are going to see an order in October to outlaw caste discrimination; many will be unaware of this being a problem in the UK. I was also unaware that Wiccans were discriminated against although last year a tribunal awarded £15,000 to an individuals whose employer would not allow them time off for Halloween. Another tribunal entertained (though ultimately rejected) a claim that someone had been discriminated against for believing in public service broadcasting.

We are going to see the right to request flexible working extended to all employees who have worked for an employer for six months. As I have argued in an earlier blog article I expect that this will lead to increased costs for employers.

From April we will see mandatory pre-claim Acas conciliation introduced; while this is touted as a way of reducing the number of cases which come before tribunals, I have some doubts about its likely effectiveness in this, and suspect that it may anyway increase the number of unjustified payouts by employers to applicants. It may also raise costs to the public purse in the longer term.

Another institutional innovation (whatever happened to the bonfire of the quangos?) is the introduction of the Health and Work Assessment and Advisory Service, which will provide ‘free’ occupational health assistance for employers, employees and GPs, including independent assessment by occupational health professionals of employees who have been off sick for four weeks or more and case management advice for employees with complex needs who require ongoing support to facilitate their return to work.

The government estimates that introducing this service will cost the taxpayer between £25 million and £50 million per year, although an earlier independent assessment suggested that the cost would be more like £150 million. Opinions differ about the likely effect of this in reducing sickness absence, which loses the UK 140 million working days per year. One study by PMI Health Group discovered that 86 per cent of respondents were not confident that the service will fulfil their occupational health requirements. Furthermore, 81 per cent of company respondents already provide staff and management with access to an occupational health service. Private provision may now be crowded out: one danger is that use of the official service will be regarded by tribunals as ‘good practice’ and become a virtual requirement if employers are to defend their behaviour. In any case, it might have been better to consider the way in which existing employment law has encouraged excessive levels of sickness absence, especially in the public sector.

To be fair, there are some minor changes to employment law which should lead to improvements this year, for example the abolition of discrimination questionnaires (introduced in the Equality Act 2010), and some relaxation of the TUPE regulations.

However, against that, George Osborne’s plan to exempt employers from some employment regulations in exchange for shares in growing companies seems likely to be the damp squib I expected. So far there have apparently only been nineteen enquiries about this from employers.

And our politicians are now gearing up for a bidding war as we approach the general election. As I noted last week, the Conservatives seem keen to undo the work of the Low Pay Commission (which costs us over £800,000 a year, incidentally) and boost minimum wages, while the Labour Party wants to go further towards widespread adoption of the Living Wage. Labour, and probably Vince Cable for the Lib Dems, also want an end to many zero hour contracts. And Ed Miliband has called for strengthening of the Agency Workers Regulations, while his shadow Education minister Tristram Hunt wants to license teachers via yet another quango, a proposal which would reduce competition and access to the teaching profession, while almost inevitably strengthening the power of the teaching establishment – despite macho talk of sacking ineffective teachers.

I’m afraid it’s only going to get worse. Few of this generation of politicians have any business experience and they fail to understand the difficulties facing employers, particularly smaller businesses, in taking on workers. While some of them are beginning to see that tax and spend policies are becoming less popular, regulation of business is still seen by far too many as a free lunch – a crowd pleaser with no direct budgetary cost, the effects of which in lost jobs and sluggish growth are not generally perceived until it’s too late.

Editorial and Research Fellow

Len Shackleton is an Editorial and Research Fellow at the IEA and Professor of Economics at the University of Buckingham. He was previously Dean of the Royal Docks Business School at the University of East London and prior to that was Dean of the Westminster Business School. He has also taught at Queen Mary, University of London and worked as an economist in the Civil Service. His research interests are primarily in the economics of labour markets. He has worked with many think tanks, most closely with the Institute of Economic Affairs, where he is an Economics Fellow. He edits the journal Economic Affairs, which is co-published by the IEA and the University of Buckingham.

1 thought on “Employment regulation – more to come”

  1. Posted 14/01/2014 at 10:58 | Permalink

    And, of course, there is auto-enrolment and real time information to HMRC. Both of these are big admin. costs for small employers and the former requires a 3% employer contribution from 2018 (1% in 2017). Not only is there the costs of setting up the systems but the 3% essentially means employees foregoing a real wage increase for about two years at typical historical rates. The the decline and abolition of contracting out of S2P was another silent NI increase.

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