Sarah Kuszynski is a research assistant at Bright Blue.
With mere days until Labour’s self-imposed deadline of its 100 days in office the much awaited “new deal for working people” has been announced. However, the employment rights bill could still give the Labour Party grief with businesses and unions concerned that the bill could backfire.
The bill aims to make basic employee rights, such as protection from unfair dismissal available from “day one” and to end “exploitative” zero-hour contracts, that is, contracts which do not come with any guaranteed minimum number of hours. The bill also seeks to put in place a raft of other measures, such as making flexible working the norm “where practical” and establishing a Fair Work Agency (FWA) to enforce employees’ rights.
The UK has an increasing number of people in severely insecure work — in 2023, it was estimated to be 6.8 million people, an increase of 600,000 from the year before. So, it is understandable that Labour feels compelled to protect workers.
Labour is also right to strengthen the right to request flexible working, which Bright Blue has previously called for, as greater flexibility enables more people, such as women with caring responsibilities and older workers, to re-enter and stay in the labour market. Indeed, a McKinsey report on women in the workplace highlighted that around 20 per cent of women believed that flexible working had allowed them to stay in their jobs.
But however well-meaning, the Government should not be pushing for changes to employment rights that might make the risk of hiring people too great, especially while the UK’s economic recovery is still nascent; business confidence is shaky and consumer confidence has plummeted — in part thanks to Labour’s doom-mongering around its fiscal inheritance.
Labour’s new deal must consider the potential impact on economic growth and business confidence. After all, the UK’s economy grew by just 0.6 per cent in the second quarter of 2024 and inflation is still at 2.2 per cent, slightly above the Bank of England’s 2 per cent target, so any opportunity for recovery could be easily thrown away.
Ill-thought-through changes to employment rights place additional legal, financial, and administrative burdens on employers. In a fragile economic climate, this could increase costs; decrease the willingness of firms to take on new hires, and undermine Labour’s goal to “kickstart economic growth.”
Labour’s planned creation of the FWA, which has the power to impose fines on companies that breach the new employment laws, should be a particular concern. As simply creating another enforcement agency would not only give the Government a bigger stick to hit businesses with, but divert resources away from much-needed growth and innovation, and towards bureaucratic box ticking — exactly the opposite of what Labour claims it wants to do.
This is not to mention that the additional administrative costs would be especially damaging for small firms and industries, including retail and hospitality, which already operate on narrow margins. Indeed, this would, as the Shadow Business and Trade Secretary Kevin Hollinrake aptly put it, hang “the Sword of Damocles over the heads of business.”
Worse yet, the bill could undermine the workers it is supposed to protect. Indeed, a recent survey by the Confederation of British Industry (CBI), has reported that only 26 per cent of businesses were confident that they could absorb the costs associated with the new legislation. As such, cost increases will likely result in stagnating wage growth for employees or be passed onto the consumer in the form of higher prices, increasing inflationary pressures and putting added economic strain on workers while the cost of living remains high.
Perhaps most crucially, there is the very real possibility that businesses become warier in taking on new hires. Research, from the Institute of Directors, for example, found that 57 per cent of business leaders would be less likely to hire new workers due to the planned employment rights changes.
What is more, companies may not only hire fewer employees but also narrow the kind of employees that they hire. For instance, firms could become less willing to take a punt on individuals with gaps in their employment history or with less direct experience in a sector, simply because of fears of incurring legal costs if the individuals turn out not to be suited to a job.
Instead, to reduce exposure to uncertainty, companies may fall back on tried and tested, but more antimeritocratic methods of recruitment, namely hiring people through personal networks or those who have qualifications from elite institutions. This would deal a blow to social mobility, hampering the ability of certain groups, namely young people and those from lower socio-economic or ethnic minority backgrounds — who coincidentally are the groups that are more likely to be in insecure employment — from progressing in the job market.
So, the Government in trying to deliver a radical overhaul of employment rights may have shot itself in the foot, as far from protecting workers it could end up restricting opportunity and heightening insecurity.
If Labour continues to pursue ill-thought-through changes to employment rights their new deal for working people risks becoming a bad deal — one which undermines the UK’s fragile economic recovery and harms the workers it is designed to help. As such, Labour’s promise to be both “pro-business and pro-worker” will look empty.
