Government and Institutions

Our own government, not the EU, is keen on labour market regulation

This article forms the basis of a presentation by Prof Shackleton at a seminar at Royal Holloway University of London.

Let me say first of all that I’m not a Brexiteer, at least not yet: I’m one of the 11 per cent or so who apparently still haven’t made up their minds with less than a fortnight to go.

I was much clearer when I cast my vote in 1975. Then I wanted to come out. At that time much of the trade union movement agreed. I’ve just been looking at a pamphlet which the TUC produced in the run-up to the referendum. It was opposed to the Common Agricultural Policy, to the unfairness of our net contribution to the EC budget, to possible restrictions on industrial policy (which was of course a big issue forty years ago with the National Enterprise Board, planning agreements and so on) – and also the influence which Europe had over social matters.

At the time the Labour government had just introduced a range of social and industrial relations legislation and the union movement was worried that being in the European Community might hold the government back:

‘So long as Britain remains within the Community the sovereignty of Parliament is undeniably circumscribed over a whole range of policies in the economic and social fields, and over a whole range of administrative activities relating to the execution of policy in those fields’.

So at this time Europe was regarded with great suspicion by the Left, as something which might hold back radical change. This was a union movement which still believed in the power of collective bargaining to produce major and lasting improvements in working conditions. That all changed, of course, with the decline of UK trade union power in the 1980s and the increased interest in social and employment issues in the European Community. A key moment was Jacques Delors’ speech to the TUC in September 1988 which held out the promise of adding a social dimension to the Single Market legislation which was being prepared. This became the Social Chapter of the Maastricht Treaty, to which the UK eventually acceded in 1997’s Treaty of Amsterdam.

Nowadays the TUC, like most of its member unions, is strongly pro-EU. It points to the long list of Treaties, Directives, Regulations and European Court Judgments which have extended employment rights. In February this year, launching a report called UK Employment Rights and the EU, Frances O’Grady said

‘Working people have a huge stake in the referendum because workers’ rights are on the line. It’s the EU that guarantees workers their rights to paid holidays, parental leave, equal treatment for part-timers, and much more.

These rights can’t be taken for granted. There are no guarantees that any government will keep them if the UK leaves the EU. And without the back-up of EU laws, unscrupulous employers will have free rein to cut many of their workers’ hard-won benefits and protections’.

I’d slightly take issue with this. For one thing, the EU is by no means solely responsible for the ‘benefits and protections’ UK workers enjoy. For another, and flowing from this, I don’t think a possible Brexit will make very much difference.

Let’s take these points in turn. First, a lot of water has flowed under the bridge since 1975. Back then, the UK already had some basic laws on unfair dismissal, equal pay, sexual and racial discrimination but it’s fair to say that neither in this country nor in most of Europe were these matters, and related issues such as disability, sexual orientation and so on considered as seriously as they are now. UK trade unions actually resisted attempts to regulate the labour market, with macho, largely male, unions insisting that they could negotiate better results with management without the government butting in.  Unfair dismissal legislation, for example, was opposed, as were minimum wages.

Times have changed. With a much more diverse workforce and greater awareness of discrimination and unfair treatment, I’d argue that we would have had many if not most of today’s employment rules even if we had stayed outside the EU. Australia, New Zealand, Canada and even the United States now have substantial anti-discrimination legislation, and things like maternity leave are common (though not in the US, I agree).

The UK has usually gone along reasonably happily with most EU employment regulation since the Treaty of Amsterdam. The obvious cases where it has done so with reluctance are the Directives on Working Time and Agency Workers. I think governments were right to drag their heels on these issues, though I don’t want to go into that here.

More significantly, I’d point to the occasions when the UK has not only supported and helped shape EU intervention, but has gone beyond what was required by Directives or Regulations. One example of this ‘gold plating’ is the Working Time Directive’s requirement for 4 weeks’ paid holiday: the Labour government increased this to 5.6 weeks. Another is maternity leave, which is longer than in most EU countries and considerably in excess of that mandated by the EU. A third is parental leave, which the Coalition extended beyond the requirements of the 2010 Directive.

There are also various important elements of UK employment regulation which are not required by any European mandate. One very obvious one is the National Minimum Wage. This was introduced by Labour, but it is the Conservatives who have added the National Living Wage for over-25s. The Conservatives have also introduced auto-enrolment into pension schemes and an apprenticeship levy, mandated equal pay audits, have tightened restrictions on entry into many occupations and made it much more difficult to employ non-EU workers. None of these things were required of us by the EU.

This does not look like a deregulating government. There are no doubt elements of European employment legislation which, in the event of a Brexit, the Conservatives might wish to repeal. However these are likely to be fewer than many people think. This government has not shown any real appetite for employment deregulation in the areas which are under its own control. For instance, it ignored largely the report, commissioned from Adrian Beecroft, which called, amongst other things, for scrapping unfair dismissal, watering down TUPE (Transfer of Undertakings Protection of Employment) and reducing consultation over collective redundancies. And the recent Trade Union Act was in my view largely a charade, an attempt to embarrass the Labour Party. When it came down to it, the government backed down on the most contentious aspects of the legislation.

Even in areas where it would like to make serious changes, a post-Brexit government would be unlikely to have sufficient Parliamentary support to push through controversial changes to employment law, and there would be a House of Lords majority against it. Such changes would anyway have lower priority than necessary replacements for a wide range of EU-based laws which currently cover areas like agriculture, fishing, energy, the environment, banking and so on. While changes to employment law might be made in the longer term, this would depend on the political complexion of future Parliaments and cannot be predicted.

It is possible that a future Labour government might go further with employment regulation in areas which are seen as important in the UK. But the EU will not be much help. For instance Jeremy Corbyn wants a higher National Living Wage, something which is currently outside the EU’s competence. He also seems to want to abolish zero hours contracts, something which is not really an issue in the rest of the EU and is unlikely to be part of an agenda for 28 countries. Many British unionists and Labour politicians might like the EU to impose stricter employment protection through a Directive, but this is probably a non-starter. Many of those countries which have had very tight employment protection legislation – such as France, Spain and Italy – are not great advertisements for this type of regulation. The European Commission believes excessive employment protection discourages job creation, is implicated in the very high rates of youth unemployment in Southern Europe, and has benefited ‘insiders’ at the expense of ‘outsiders’. The last thing it wants to do is impose French or Italian levels of job protection on the rest of Europe.

Some unionists may also want to see fewer restrictions on the right to strike. They perhaps look longingly at Article 28 of the Charter of Fundamental Rights of the European Union, which sets out the right for unions ‘in cases of conflicts of interest, to take collective action to defend their interests, including strike action’. Surely this could be used to force the UK to scrap the restrictions on strike action which the Thatcher and Major governments imposed? Again unlikely, I think. All countries have some restrictions on strikes, and the UK isn’t the most extreme. A large proportion of German civil servants, for example, are forbidden to strike – this includes university lecturers! That restriction is embedded in the German constitution, so Germany would be unlikely to support cross-European legislation which would call its own restrictions into question. And the recent damaging strike activity in France and Greece does not help the cause. In any case both the UK and Poland have a protocol which was intended to prevent any new EU powers arising from the Charter when the Lisbon Treaty was signed.

So, to conclude: my argument is that, first, less of the employment legislation we currently have is the consequence of EU membership than people often imagine; second, it is unlikely that there would be significant deregulation after a Brexit.

Going forward, if trade unionists and Labour politicians think that, after a vote for Remain, the EU is likely to bring us new regulation of the kind that many of them would like, I fear they will be disappointed. In any case, if unionists and politicians want such regulation, they really ought to make a case to their fellow citizens rather than expect the European Union to impose it for them.

There may be many good reasons to vote for Remain in this month’s referendum, but I don’t think a wish to protect and extend Employment Regulation and Employment Rights is necessarily one of them.

Prof Len Shackleton is Professor of Economics at the University of Buckingham, and an Economics Fellow at the IEA. Read his chapter ‘UK employment regulation in or out of the European Union’ in the IEA monograph Breaking Up is Hard to Do. Britain and Europe’s dysfunctional relationship.

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.