The government must remember that employers need flexibility to thrive, writes John Dickie
The government’s efforts to create stability and restore confidence in the economy face a pivotal month. Most of the focus is on the Budget where the new government will set out its plans on taxation and public expenditure which will establish the context for its growth mission. But for many firms, the new Employment Rights Bill will have a more significant impact on their day-to-day operations.
Labour says its plans to strengthen workers rights will increase living standards, make work pay and drive up productivity – objectives that most employers wholeheartedly support.
Good businesses already have good working standards. They recognise that having them is not only the right thing to do but also bestows them with a competitive edge, especially in terms of staff retention and recruitment.
This is particularly important at a time when firms across different sectors are facing acute skills shortages. A BusinessLDN survey of over 1,200 London businesses, conducted by Survation earlier this year found almost half of respondents struggling to fill vacancies. Employers leading the pack on conditions for their employees are likely to face fewer problems than their rivals.
Driving up standards across the economy is therefore to be welcomed – providing, of course, that new regulation works with the grain of good practice and does not expensively constrict employers’ ability to manage performance and respond to changing economic conditions. These flexibilities, after all, will be key to delivering on the government’s growth mission.
Labour’s commitment to a full consultation on how to put its plans into practice before legislation is passed is the right starting point. It is vital that businesses are given the opportunity to engage and that the government listens to and acts on the practical detail of responses. This will help to strike the right balance between increasing protections for individuals while also maintaining the flexibility that both businesses and employees value.
The problem with ‘day one rights’
An obvious example is ensuring that the introduction of ‘day one rights’ for workers does not undercut the legitimate use of probation periods. It is impossible for a recruitment process, no matter how robust, to ensure that the prospective employee is right for the job – and that the job is right for the employee. Therefore it is vital to be clear on how probation periods will work in practice before removing the current two-year qualifying period so that it does not lead to a spike in expensive and difficult employment tribunals for unfair dismissal. If employers cannot establish a good fit in practice, they will be more cautious in recruiting new staff and growing their business.
The introduction of the minimum wage in 1999 by the last Labour government is a good object lesson. Heavily criticised at the time by some as excessive regulation which would inevitably destroy jobs, the legislation created a framework for the minimum wage to be increased carefully, based on levels which would not increase unemployment. The result was that, over time, the real wages of the lowest paid steadily increased without the loss of jobs or damaging competitiveness.
Taking a similar approach to employment rights, with the government working in partnership with business, unions and others, can achieve a similar, positive outcome.
Recent data from recruiters suggests employers are putting hiring on hold as they wait for more clarity from the government on its plans for tax and employment rights. The publication of the draft bill on Thursday will provide further indication on the direction of travel but continuing engagement with business will be essential to get the detail right.
A holistic approach to tackling challenges in the labour market is vital if the government is to meet its ambitious targets of increasing the UK’s employment rate to 80 per cent – up from the current 75 per cent – and delivering the highest sustained growth in the G7.
Increasing living standards by making work pay is part of the solution to tackling the UK’s flatlining productivity. The private sector wants to help the new government tackle chronic skills shortages and get our economy growing. Together we can deliver a fairer deal for both employees and employers so that our economy works for all.
John Dickie is chief executive of BusinessLDN