Dominic Raab is Conservative MP for Esher and Walton. ‘Escaping the Strait Jacket: 10 Regulatory Reforms toCreate Jobs’ is published by the Centre for Policy Studies.
The Chancellor’s autumn economic forecast looms with storm clouds over Europe. Gloomy unemployment figures out today show unemployment at 8.3%, and more disturbing still youth unemployment at 21.9%. The coalition’s deficit plan is protecting mortgages from a debilitating hike in interest rates. But, growth remains tepid. With further tax cuts on business seemingly ruled out on grounds of budgetary discipline, policy on red-tape is crucial. If we are to get the economy out of the doldrums, and mitigate against global uncertainty, British businesses need all the help they can get.
The coalition has introduced measures to stem the rising tide of regulation. But, what about scaling back the existing morass of rules? Over the last 30 years, employment regulation alone has inflated by 502%. This year, business will spend £112billion complying with red-tape. By increasing the cost of employment, government has curtailed its supply. Choking the enterprises that create jobs with red-tape is not just economically uncompetitive. It is social injustice too. A stubborn refusal to shear off regulation puts the rights and entitlements of those in work above the plight of the most vulnerable – the unemployed. Those lobbying to keep regulations are making a harsh moral and social decision, at the expense of those in the greatest need.
In a report published by the Centre for Policy Studies today, I make the case for ten regulatory reforms to boost job creation. Small firms and start-ups created two-thirds of new jobs each year between 1998 and 2010. But, they are being stifled by the welter of red-tape. They should be exempt from regulation, like extensions to the right to request flexible working and time off for training. Until businesses have 50 employees, it is not reasonable to expect them to hire human resources staff to administer this kind of regulation – the money would be better spent on hiring more people to expand. Likewise, the Low Pay Commission recently advised Ministers that the level of the minimum wage be hurting young people’s job prospects. Why not suspend the minimum wage for 16 to 21 year olds working for small businesses, in order to give them a foot on the ladder? The talented and hard-working won’t stay on the bottom rung for long, but they must first be given the chance to work.
Businesses are also fighting the surge in employment claims which have trebled in five years, including many spurious claims that are withdrawn or fail but cost employers a bomb to defend.Increasing the deposit a tribunal can require for weak claims (or parts of claims) from £500 to £1,000 would help. Modest fees for launching any claim would also deter chancers. Venture capitalist, Adrian Beecroft, advised Number 10 to replace unfair dismissal with ‘no fault dismissal’, to allow firms to replace underperforming staff with greater ease. This met with resistance from the unions and some Liberal Democrats. A compromise would be to introduce the option of ‘no- fault’ dismissal but retain the right to claim unfair dismissal, whilst strengthening the ability of employers to defend those claims, by widening the concept of ‘fair dismissal’ to include inadequate performance which falls short of the current high standard of inherent inability or neglectful incompetence. These changes would encourage business to create more jobs overall, by reducing the risk and costs of being burdened with slack or under performing staff.
Likewise, abolishing the default retirement age of 65 is a welcome reflection of the need for our ageing population to work – and save – for longer, and recognises the experience and reliability that older employees often bring. But, it creates a headache for employers and employees, because there is no proper mechanism for allowing older staff to adjust their pay, role, responsibilities and hours. Both should be able to initiate a ‘protected conversation’ – without employers fearing being sued for age discrimination – to enable them to discuss changes to suit both the needs of the business and the shifting priorities of the employee in later life.
We also need an overhaul of EU social and employment red-tape. Open Europe estimates that a 50% reduction in EU social regulation could create 140,000 new British jobs. Whether through opt outs or repatriation of powers, this is now urgent. To start with, we should reform the Transfer of Undertakings (Protection of Employment) Regulations that deter business rescues that save jobs. Next, secure an exemption from the draconian Working Time Directive that stifles flexibility – for employees and employers – costing our economy £3.6billion each year. Then, scrap the Agency Worker Regulations that will cost jobs and deny workers flexibility.
Today, the race to the bottom is not malevolent businesses exploiting workers, but the sclerotic business regulation that cossets those in work, by filling the ranks of the unemployed.