Analysis: How should the government help employers during the economic downturn?

The UK is now in a recession in all but name. Economic output dropped by 0.5% in the three months to 1 October – the first time it has fallen since the dark days of 1992 – and a second fall in the final quarter of 2008 is likely. Greg Pitcher asked senior labour market figures what the government should do to help employers through the hard times ahead.

John Philpott chief economist, Chartered Institute of Personnel and Development

“With unemployment rising sharply, and both the prime minister and the business secretary warning that the emerging recession will have a further significant impact on jobs, it is time for direct policy action to limit the scale of job losses.

Employer NI costs

“There are limits on the efficacy of public infrastructure projects, which the government seems to prefer generalised tax cuts of the kind that appeal to its critics and welfare-to-work measures targeted at those people who are already jobless, which politicians of all persuasions support. All have their place, but none has a clear or immediate impact on sustaining levels of employment in a severe economic downturn.

“A preferable alternative would be a time-limited cut in employer National Insurance contributions, targeted at employers in the private or voluntary sectors to enable them to retain and to provide training for any member of staff who would otherwise be made redundant because of short-term trading difficulties.

Tax cuts

“The size of the tax cut could be set as equivalent to the average cost of unemployment to the Exchequer – taking into account benefit payments and lost tax revenue – which would limit the cost to the public purse.

“Unlike other ways of protecting jobs, this would not adversely affect employers’ willingness to hire staff, and could be withdrawn once the economy starts to recover.

“The chancellor should give urgent consideration to this or similar measures in his forthcoming pre-Budget report.”

David Yeandle, head of employment policy, EEF

“There is a window of opportunity to implement short-term measures to reduce the costs facing businesses, provide temporary additional support for investment, and to postpone measures that might add to the regulatory burden.

“Specifically, this includes: a reversal in the planned increase in the tax rates of small companies, which ought to be frozen at 20% until 2010 at the earliest a rise in the annual investment allowance for capital goods – from £50,000 to £250,000 – for a period of 18 months and a postponement of the planned increases in the landfill tax and the aggregates and climate change levies.

Too many laws

“Finally, to keep the regulatory burden to a minimum, the introduction of new employment and environmental regulations currently in the pipeline should be delayed. In particular, the extension of the right to request flexible working, which many companies are currently finding problematic, should be postponed.

“Companies need to be able to maximise the flexibility of their operations, and an extension to this right will put up barriers.

Productivity gains

“Clearly, life will be tougher for manufacturers in the next 12 months. However, since the turn of the century, there has been a substantial improvement in manufacturers’ performance, and there is no reason to think this will not continue to bear fruit in a leaner, more dynamic sector, which will emerge from the current difficult period ready to take advantage of the upturn.”

Derek Simpson, joint general secretary, Unite

“We need action to halt redundancies. UK workers are the cheapest, and easiest, to sack in Europe. This must end. We need to keep people in work, and keep jobs in our communities, which is why we need our government to be batting for more support for UK businesses at a European level.

Government spending

“The personal costs of joblessness need addressing too, beginning with an urgent update of statutory redundancy pay – the level of which has stood still for decades. We also need an immediate introduction of legislation to protect agency workers, who are the cheapest and easiest of all to throw onto the scrapheap.

“To energise the economy, we need a further cut in the interest rate, alongside a massive programme of national investment -whereby the government uses its power of procurement to safeguard skills and create jobs. The Bank of England should also be tasked with considering unemployment alongside inflation when it sets the interest rate.

Public sector pay

“The pitiful low pay of our public servants must be addressed, not only because this is the right thing to do, but also to help millions of struggling workers and to support consumer spending in the wider economy. Payment for this should come from a fairer, more pro­gressive tax regime.

“Ultimately, we want to see the same urgency, courage and decisiveness showed by the prime minister and chancellor in keeping our banks in business, used to support jobs and our communities.”

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