10 June 2020

Liberate business to boost employment after lockdown


Only a few short months ago, the UK labour market was having its best spell for decades – rising employment, high labour force participation and low unemployment. This was largely because, although there was arguably too much employment regulation, the labour market remained flexible, certainly much more so than in most of continental Europe.

Today we face grimmer prospects. At least two million are probably unemployed already, and many of the 8.7 million furloughed face losing their jobs as the Coronavirus Job Retention Scheme unwinds.

As we emerge from lockdown, many businesses will no longer be viable as social distancing – whether officially required or the result of the persistent fears of a seriously-spooked population – makes restaurants, pubs, cafes, theatres, cinemas and many other leisure activities no longer profitable.

Exiting the inevitable recession will be difficult but not impossible. Economies have recovered from much worse, where market forces are allowed to operate: devastated West Germany after World War II, for example.

But will market forces be permitted to repurpose employment, or do we face yet more government interference? The stunning achievements of the supermarkets and other private sector businesses in keeping us supplied during the Covid-19 crisis contrast sharply with the often abysmal performance of Public Health England and many hospital trusts. But capitalism continues to have a bad press. Many claim that we need fundamental changes to our economic system.

The TUC has called for a higher National Living Wage for all workers, however young and inexperienced; pay increases across the public sector; bans on zero hours contracts and all outsourcing; plus subsidies to unspecified ‘green’ businesses and higher out-of-work benefits. Apart from the financial costs, these proposals would be a clear deterrent to private sector businesses taking on extra staff.

The TUC also advocates a National Recovery Council, a distant echo of the long-dead National Economic Development Council established by Harold Macmillan in 1962. This would give unions a say, possibly a veto, on new employment policy.

Many of the TUC’s proposals are echoed by the Resolution Foundation, which argues for for a ‘new settlement’ for the low-paid. There is the same pressure for a higher National Living Wage, tight restrictions on zero-hours contracts, new employment rights such as earlier protection under unfair dismissal laws. Unions should be given the right to enter workplaces to recruit members.

Where the TUC wants to revive tripartite discussions at the national level, the Resolution Foundation has revived an even older idea. It wants ‘21st century wage boards’ to set employment conditions in low-paid industries. This is a throwback to Winston Churchill’s pre-WW1 Trade Boards (later Wages Councils), which at one time covered 3 million workers. When the last of these boards (the Agricultural Wages Board) was wound up in 2012, it was still holding regular meetings between unions, government and employers to set the minimum hourly pay for agricultural workers at just 2p above the National Minimum Wage.

These wish lists appeal to union activists and progressives ensconced in universities or comfortable public sector jobs. But as a way of reviving employment they are complete non-starters.

The government has recognised that some regulation should be reduced: Sunday opening; restaurants freed to provide takeaway food; extensions to delivery hours and hours which construction sites can operate; proposals to simplify changed use of high street buildings. But nothing of significance has been proposed for employment regulation.

The only employment proposal we have seen is the Prime Minister’s ‘apprenticeship guarantee’ to all young workers. Mr Johnson apparently met some Clydeside apprentices on the election trail last year. Now, like many politicians before him, he’s an enthusiast for apprenticeships. But the only way the government can ‘guarantee’ apprenticeships is to pay businesses to take on subsidised workers who would be awarded low-level qualifications by ‘industry bodies’ staffed by superannuated consultants and FE trainers. This has happened repeatedly in the past.

If employment is to recover quickly, businesses must be free to make their own decisions about training, recruitment and much else. Their task can be facilitated by relieving them of some of the more irksome aspects of employment law, rather than adding yet more mandates.

For example, the government could simplify our over-elaborate minimum wage system, which, uniquely, has five separate rates and many detailed requirements. We could scrap the commitment to raising the National Living Wage to two-thirds of median hourly earnings by 2024. The scope of occupational regulation could be reduced: it has greatly expanded recently and now excludes workers unnecessarily from many jobs such as estate agents, social workers and security guards. We could modify rules on working hours and on the need to treat agency workers as full employees. We could look again at pension auto-enrolment. In view of the recent problems with unions slowing the path out of lockdown, we could revisit industrial relations law.

With unemployment heading north of 10%, our path should be clear: reduce restrictions on employing people, don’t add to them.

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Professor Len Shackleton is an Editorial and Research Fellow at the IEA

Columns are the author's own opinion and do not necessarily reflect the views of CapX.