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Mel Stride is the Member of Parliament for Central Devon, founder of the Deep Blue group, and an entrepreneur.

Along with its headline grabbing decision to look into the
practicalities of a General Strike over public sector pay and conditions, a key
message from last week’s TUC conference is that the union movement is especially
determined to confront the Government over labour market reform. Departing
General Secretary, Brendan Barber, dismissed planned Government measures as nothing
more than "making it easier for bad employers to get away with misconduct" and
asserted that easing labour regulations "will not create a single new job". His
views are shared widely across the trade union movement and the reform of
employment legislation is likely to occupy a key area in the battleground between
unions and government over the coming months.

The line adopted by the TUC on supply-side reform is to misunderstand
both the severity of our current economic challenges and the importance of
enterprise and business in helping us to come through them. To propel ourselves
firmly out of recession it will be increasingly important to leverage
enterprise and to continue to press ever harder in our support for business. The Government has already done a great deal. The Chancellor’s progressive
step-down in corporation tax rates and the recently announced reforms to
employment tribunals are welcome examples of bold and positive action. And John
Hayes in particular leaves a legacy of real success through his boosting of high
quality apprenticeships – an achievement that will in turn inject skills and growth
into the veins of our economy for many years to come.


More recently the ministerial appointment of Michael
Fallon (who has board level experience within several businesses including some
of those developed by serial entrepreneur Duncan Bannatyne) has been widely
welcomed. His arrival at BIS clearly underscores the Prime Minister’s determination to ensure
that business and growth are right at the top of our agenda. Even in Michael’s
short time in post, there has been a perceptible change in pace and emphasis – the
recent announcements about tackling red tape with renewed vigour and the
language around how we should see entrepreneurs and wealth creators are both
important. Headlines like the Daily Telegraph’s "Fallon talks the language of
wealth creation
" do matter.

As Conservatives we should also be proud of what we have achieved
in the past and equally, we should learn from it. The Thatcher era supply-side reforms
are still of huge importance today. Their potency can, perhaps, be usefully
viewed through the prism of the great macroeconomic conundrum of the moment – the
apparent contradiction between falling unemployment/growing employment on the
one hand and economic contraction on the other. There are probably a number of
explanations for this. It may be that the GDP figures have been underestimated
over the last three quarters (as with the 1990/91 recession where the estimated
drop in national output was reduced a few years later by over 40%). It is
certainly the case that increased part-time working is a factor and that the excellent
efforts of Iain Duncan Smith and Chris Grayling have helped to get more people into work. But
our success on the employment front also owes much to the more flexible labour
markets that were ushered in by the radical supply-side reforms of the 1980s. In
that sense a significant element of the government’s great achievement of
creating a million private sector jobs today are a tribute to what Maggie had
the courage to do thirty years ago. Up and down the country there are many
thousands in work today who unknowingly owe their livelihood to her.

Whilst the potency of supply-side flexibility is clear, the
left including the TUC will no doubt argue that if our labour markets are already
flexible enough to deliver jobs in one of the worst recessions in our history, then
surely there is little need for further radical change. I disagree profoundly
with this. We live in a rapidly changing and increasingly internationally competitive
world in which today’s supply-side flexibility can quickly become tomorrow’s millstone: an affect accelerated by the rapid growth in the competition provided by
emerging economies. Increasingly in the global marketplace of the future, we
will find ourselves bumping up against the likes of China and India rather than, say, Germany and France.

Effective supply-side reforms promote businesses in two ways
– firstly they free them up to get on with generating profits and jobs but, secondly, they powerfully promote the message that the government is completely committed
to business and entrepreneurship. This in turn has a knock-on effect on
business confidence – something that is especially vital at the current time.
We hear much about the banks being unwilling to lend but we should not forget
that UK PLC is itself sitting on £750 billion in cash without the confidence to
invest it. Radical messaging to the private business sector on supply-side
reform will go some way to ensuring that this money is levered out and put to
work creating wealth and jobs. So what measures should we press on?

I believe that we should take seriously calls from the CBI,
the FSB and other respected business organisations to take another look at significantly
reducing the burdens to business of employment-protected leave of absence. These
employee rights vary significantly from country to country and typically include
Maternity and Paternity leave (paid time off for mothers and fathers around and
beyond childbirth), Parental leave (typically unpaid supplementary time off
beyond the period of maternity leave and sometimes available to either parent)
and Home Care leave (leave to care for children up to age 3). To be clear, I am
not arguing against the principle of these kinds of employee rights – government
and businesses should provide help to mothers around and beyond the time of
birth and I also recognise that employment-protected leave has a significant
role to play in supporting female participation within the workforce1.
But a key question here is where exactly should the balance be struck between
the extent of these rights and the level of the burden they place upon businesses?

Compared with our international competitors, Britain has a
relatively generous/onerous employment-protection environment as can be seen
from Table A (below) which was compiled for me last year by the House of Commons
Library.

In Britain, an employee can require their employer to provide
up to 52 weeks of statutory maternity leave and to keep their job open for
their potential return. If the job they held prior to their leave is not
available a year later then a similar job must be provided and with the same
salary, terms and conditions. During any period of absence the employer must
make a contribution to the employee’s statutory maternity pay, continue with the
employee’s pension contributions in full and potentially also continue to
provide benefits such as the use of a company car, mobile phone, club
memberships etc. Incentive arrangements (such as equity option schemes) will
also typically remain in place and benefits that might follow from them will
still be available even though the employee may have been away for a year or
more and therefore perhaps have contributed little to the successes upon which the
rewards from the scheme are based.

Holiday entitlement continues to accrue during leave and can
then be added to the leave period prior to any return to work and is a period of
further time off during which the employee is fully salaried entirely at the
expense of the business. The father or partner of the mother may also be able
to take up to 28 weeks leave from their employment prior to the child’s first
birthday.

These rights accompany each and every pregnancy and so it is
not uncommon for an employee to take multiple breaks from work in relatively
close proximity and for up to a year on each occasion.  Under these circumstances not only do
employers have to struggle with filling jobs on a temporary basis for lengthy
periods but they also often face considerable uncertainty as to how long the actual
period of absence will be with the mother being able to delay her decision on
the date she will return to work until well into the period of leave. In some
instances, employers will keep a job open (with temporary staff cover) only to
find that after over a year’s absence the mother decides not to return after
all. The temporary arrangement then has to be unwound and a new permanent
placement recruited.

The impact of these requirements on small businesses in
particular can be profound. It is hard to see how most micro-businesses (those
with 10 staff or less) can grow effectively where a key director or senior manager
is away from work under these circumstances. These situations can also cause
resentment amongst existing staff who are often called upon to work additional
hours and change their work arrangements to compensate for the absent employee.
It is also unfortunately the case that some employers discriminate against
women of childbearing age during the recruitment process – a highly undesirable
and unintended consequence of employment legislation, the intent of which is to encourage
exactly the opposite – i.e. increased female participation in the workforce.

The politics around this issue are tricky, with worldwide experience
showing that changes in this area of employment law tend to ratchet in one
direction alone – towards greater generosity to employees. Indeed those countries such as Austria, the Czech Republic and Poland who were the first in on these
labour market reforms (in the 60s and 70s), have now incrementally moved to providing
amongst the most generous arrangements in the world. There have though been
some notable examples of countries rowing back in this area in recent years, including Germany. If we want to provide a massive shot in the arm for British business
and entrepreneurship I would hope that we could seriously consider following
their example with at least a close look at relaxations in protected-employment
legislation for smaller businesses. The result will be business growth, more
jobs and stronger public finances – the very base upon which we can better
support the kind of society in which mothers, fathers, families and future
generations will flourish.

Table A

House of Commons Library analysis (pdf).

1 The role that Maternity leave has in improving the
engagement of women with the workforce is important. The evidence suggests that
by holding positions open and making businesses more family-friendly, women are
more likely to enter the world of work and to come back into employment after
having children than would be the case where no such benefits are offered. There
is, however, some evidence that as the offering becomes more generous, the
likelihood of a mother with young children returning to work diminishes. Table
B below (extracted from "Doing better for families – OECD 2011") shows, across
a number of countries, the relationship between the employment rates for
mothers with young children and the duration of the maternity leave available.
It suggests, at least across the range of employment-protected rights provided
by the countries featured, that female workplace re-engagement for women with
young children is actually stronger where maternity rights are less generous to
employees and less onerous on employers.

Table B

 
Table B

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