What changes to workers’ rights mean for the Budget – and the economy

While it has nowhere near the importance of next week’s Budget, the Employment Rights Bill will have a significant and potentially long-lasting effect on the economy. Attention has most recently focused on the idea that workers can now “go on strike for a year” as one of the more sensationalist headlines put it. In fact, some of the changes to industrial relations are much more modest than sometimes portrayed; but others, and allied changes to the minimum wage and employers’ national insurance obligations, may have a greater impact.

No – at least, no more than at the moment. The particular measure in question extends the length of the “mandate” to consider taking industrial action from six months to a year. Given that going on strike for any period involves loss of pay, and that few if any stoppages last six months, a strike dragging on for up to a year is vanishingly unlikely. This would also apply to a year working to rule and other arrangements short of a strike, but even in the 1970s when some workplaces did stand still for months on end (because strikers were given benefits) such disruption was uncommon.

Because it would mean that intermittent action – one strike day, or a few days at a time – would be lawful for a longer period without a fresh ballot, and we’ve seen how effective and damaging such disruption has been in the NHS and on the railways in recent years. However, it has equally been the case that union memberships have usually endorsed a six-monthly renewal of the strike mandate, and there’s no reason to believe that a one-year rule would make much practical difference. Much the same goes for the relaxation in the majorities requested for a strike ballot to be effective: they usually exceeded the stringent demands set by the Tories in any case.

Yes, and it’s undeniable that smaller businesses could be hit quite hard by a combination of more onerous workers’ rights, increases to the minimum/living wage, a rise in employers’ national insurance contributions, the possible tightening of capital gains tax and inheritance tax, and other changes. The tendency in recent times has been to “privatise” the costs of social insurance that might better be shouldered by the state: compulsory employer contributions to pensions, steep increases in the minimum wage rates, apprenticeship levies and so on. For obvious reasons, these administrative and HR costs are harder to bear for small firms operating with small profit margins and struggling to find labour. The next result would be a reluctance to take on new staff who could be hard to sack for poor performance, a lower demand for labour and a less flexible labour market, one of the few comparative advantages still enjoyed in post-Brexit Britain.

A gross figure of £5bn has been determined by the government’s own economic impact assessment of the employment bill – mostly a direct cost to business, with little assessment of the longer-term impact on labour costs, productivity, competitiveness and, thus, economic growth. The legislation will thus cost businesses more in new administrative, compliance and operational changes, not to mention more managerial time and inevitably bigger HR teams.

Even so, perspective is needed. While there is a £5bn “hit” to business, the notional benefit to workers presently on, say, zero-hours contracts soon to be abolished, amounts to some £3bn. So, arguably, the “net” cost is only £2bn, out of a total national “wages bill” of around £1.3 trillion, ie an additional cost of either 0.17 per cent (the £2bn figure); or 0.38 per cent (for the cost to employers of £5bn). It’s also fair to note that many of the government’s proposals are out for lengthy consultations with business.

Naturally, they’re against the reversal of their most recent laws, but one of the acts, imposing minimum service guarantees in vital public services, was never actually used by any employer, and the bulk of the deregulation of the British labour market dates back to the 1980s and 1990s, and all the important restrictions on union power from that time, such as on secondary picketing, “unofficial” or “wildcat” strikes and social security for strikers, are firmly in place.

For her part, Kemi Badenoch is wary of any re-regulation, both on economic and “culture war” grounds, and she sees supposedly bloated HR teams as events of division, and of corrosive workplace culture. Indeed she claims, with scant evidence, that HR departments are “running the economy right now”, and that statutory social costs, such as maternity leave and pay levels are threatening companies and jobs.