In the years following the financial crisis, the UK faced an unemployment challenge.
As the great recession bit, the unemployment rate started to rise – peaking at over 8 per cent in 2012, around about the time former chancellor George Osborne was being booed at the Olympics.
However, by the end of that year the rate was falling – and it continued to fall for the next seven years. When analysing the British economy over this period, there aren’t many positives to point at. Wages stagnated, debt increased as a percentage of GDP, productivity was sclerotic and growth was lethargic.
In this gloomy landscape, employment was a bright spot.
Economists still debate the reasons for this, but few could credibly argue that the UK’s flexible labour market wasn’t a major driver of this minor jobs miracle.
In the wake of the financial crisis and as ‘austerity’ was imposed across the public sector, there were loud calls for more European-style labour market protections. Fortunately, the coalition era government rejected such demands. Even the Liberal Democrat business secretary, Vince Cable, discovered a taste for free-market red meat, siding with employers amid calls to reform employment tribunals.
Only the onset of the Covid pandemic saw unemployment rates climb once again. Whilst the labour market is not without its problems (the rate of economic inactivity is stubbornly high) there are worrying signs that the government’s package of employment law reform, combined with tax rises, is starting to have a chilling effect on hiring intention.
The Institute of Directors is one of the more mild-mannered business groups in the UK, but they’ve been left with no choice but to point out – with some understatement, some might think – that “business leaders are concerned about the impacts of the proposed new [labour market] reforms on the cost of employing staff.”
This follows a survey of their members in which a staggering 57.2 per cent said they would be less likely to hire people if the proposed Employment Rights Bill comes into effect.
Other surveys convey a similar sense of alarm, as do the comments of an increasing number of business leaders and investors. The simple truth is that Labour doesn’t understand the reality of hiring in the private sector, and by pushing through the proposed reforms ministers are playing with fire.