A few months ago David Cameron said that a businessman told him “I don’t care if the UK’s processes are more flexible than most European countries”, as it was cheaper to hire and fire in the US. The Prime Minister went on to say “that’s like saying we’re better than Italy at cricket. The real competition is the US and Asia. That’s why I want to deregulate and cut back on bureaucracy”.
Vince Cable chipped in saying “what we are doing here is hacking through the excessive red tape and regulation that prevents too many businesses from creating new jobs in the first place” along with “ambitious plans to deregulate and modernise employment relations”. However, within the same speech he admitted “the UK has one of the most effective and lightly regulated labour markets among developed economies”.
A few weeks ago Liam Fox continued the theme arguing for the wholesale “deregulation” of the labour market saying “it is too difficult to hire and fire and too expensive to take on new employees”.
I think we can safely conclude that the government’s aim is to deregulate employment law, moving away from what was previously employment protection, to employer protection.
Aside from political ideology, I believe there is no credible evidence to support this push for deregulation.
According to the World Bank’s ‘Doing Business’ rankings, the UK ranks 7th in the world for business ‘ease of operating’ out of a total of 183 countries, behind only, in order, Singapore, Hong Kong, New Zealand, the US, Denmark and Norway. Yes, that’s right; we are currently, according to the World Bank, the 7th easiest country in the world within which to operate a business. That’s before any of the government’s proposed employment deregulation kicks in.
On top of this, the OECD’s ‘employment protection index’ measures the procedures and costs involved in dismissing and hiring workers and employees across the developed world. Of the world’s 21 largest economies, the UK currently already ranks as the 3rd cheapest behind only Canada and the US. This means that out of the 21 major economies, the UK has the 3rd lowest level of employment protection and associated costs.
In contrast, in terms of increases in unemployment, Germany and the Netherlands, whilst having much higher levels of employment protection and regulation, have had smaller rises in unemployment. Also many would point to heavily regulated and protected German workers as being very productive and of course no-one can deny Germany’s current success.
There is no credible hard evidence supporting the government’s view that ‘hacking and slashing’ employment protection will fix the UK’s economic problems. Given the fact that many countries have much higher levels of employment protection, not least Germany, maybe the Government should take an alternative approach, by increasing employment protection!
Finally, given the most recent Employment Tribunal statistics, the government no longer seems to be banging the drum that ‘there are too many Employment Tribunal claims and so we must cut employment protection’. This is hardly surprising, given the fact that as reported in our last blog the latest quarterly statistics for the Employment Tribunal covering the period from July to September 2011, show there was an overall fall of 30% in new claims with a 41% fall in new multiple claims (such as for equal pay). Hardly an imperative for change!
David Sorensen - Partner
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