An increasingly inflexible labour market and significant skills shortages
are damaging the UK’s competitiveness, a report by the Confederation of British
Industry (CBI) finds.
The report, the first of a series of CBI studies assessing the UK as a place
to do business, compares UK labour market flexibility with the US, Germany,
France, Spain and the Netherlands.
It claims competitor countries are closing the gap with the UK, which has
the most flexible labour market in the EU and the lowest unemployment.
The study states that a "relentless build-up" of employment
regulation is eroding strengths such as freedoms to change work patterns and
It warns that key competitors like France and Germany are removing layers of
labour regulation, while the UK has moved in the opposite direction.
The report finds that weaknesses – such as "appallingly low"
levels of basic skills – are improving too slowly and may take decades to
The CBI study also reveals more than half of the firms that have moved, or
are considering moving abroad, report that labour costs are the most important
The CBI believes this "inevi-table" trend makes other forms of
flexibility more imperative as UK firms cannot compete on low wages.
Digby Jones, CBI director-general, said: "Labour market flexibility has
been a jewel in the crown of the UK economy for 20 years, but other countries
are threatening to steal that jewel.
"In areas where the UK is strong, we are moving in the wrong direction.
In areas where the UK is weak, our improvement is only patchy. The price could
be extremely high because our competitors are closing the gap."