Employment law breathing space needed to cut business costs

With unemployment being so high, particularly among the young, anything that makes it more difficult for employers to hire new staff is of particular concern. With this in mind, the British Chambers of Commerce decided to track the additional costs that any employer can expect to deal with in the coming years.

From April 2010 to April 2014, the cumulative net cost to business of new employment regulations and taxes will be £25.6bn. This estimate was created using the government’s own figures, very often an underestimate of the true costs involved (view legislation timeline).

Perhaps one of the best (or worst?) examples of this is the estimated costs of compulsory gender pay reporting in the Equality Bill, which is a paltry £41 per organisation. The rationale was that for a business to calculate these figures, it would take only one hour of management time. This is a significant underestimate, given the time needed to gather the information alone, never mind to create and publish the statistics required by the legislation.

A high proportion of the £25.6bn comes from the National Insurance increase of 1% due in April 2011. This rise is a tax on jobs and recovery – and should be cancelled. Our research suggests this increase will have a real impact on job creation in the UK, at exactly the time businesses need to be encouraged to take on more staff to help stem unemployment.

We have also included the cost, based on previous rises, of an annual national minimum wage (NMW) increase. At the 2009 TUC conference, Gordon Brown announced, and then re-iterated at his own party conference, that under a Labour government the minimum wage would rise each year. This is not just a burden on business; in addition, it plainly undermines the role of the independent Low Pay Commission, whose role is to make yearly recommendations on any NMW rise based on economic conditions.

It is not merely the cost of new employment regulations that concern our members, but also the volume and complexity of the legislation; 2011 is a case in point. Small businesses will have to cope with a new right to request training for the first time, a complex change in employment law, allowing multiple discrimination claims, new rules regarding the hiring and remuneration of agency workers, and the introduction of shared parental leave, as well as with the additional paternity leave and pay regulations.

For a large business with an HR department, this will be a challenge. For smaller owner-managed businesses, coping with this legislative onslaught will be almost impossible.

What is truly daunting is that the costs and changes included in our research do not include anything a new government may wish to legislate for. There are already several pieces of legislation in the pipeline in the EU, notably the Parental Leave Directive and the Pregnant Workers Directive. There is also the possibility of changes to the UK opt-out from the Working Time Directive, and the scrapping or amending of the default retirement age. Taken together with the regulations and costs in our timeline, this presents an alarming picture for sole traders considering taking on their first employee, smaller businesses looking to expand, and larger businesses looking to control costs.

Our figures support the case for a three-year moratorium on employment law in the UK. This would allow existing regulations to bed in, and give businesses some room to breathe.

The UK government should also lead a campaign for an EU-wide moratorium. So much employment regulation legislated for by the EU is designed for the more rigid and inflexible labour markets found in other European countries, such as Spain or Germany. The Agency Workers Directive is an example of such damaging legislation.

The next government must focus on economic recovery and job creation. It is the private sector that will drive the UK economy out of recession, and its efforts must not be undermined. The costs identified in this timeline must be reduced. Will the next Parliament add to these burdens, or free businesses to promote growth?

 View Legislation timeline

Abigail Morris, policy adviser, British Chambers of Commerce

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