Acting now will embed greater security for workers into the post-COVID-19 economy; the benefits of this outweigh the economic risks.
In the years before COVID-19 hit, there was growing agreement that more should be done to make sure having a job meant security and stability. The 2018 Good Work Plan confirmed the Government’s intention to improve the quality of work, and the 2019 Queen’s Speech promised an Employment Bill to start delivering this. Then the pandemic hurtled into view and, for good reason, business as usual was put on hold to deal with the emergency.
A year and a half on, as restrictions lift and the UK trials a new kind of normality, longer-term plans are back on the table. Despite reassurances that the Employment Bill remains ‘a central part’ of the Government’s efforts to protect and enhance workers’ rights, there is a serious risk momentum is lost due to concerns about the current economic climate. Rather than seize an opportunity to act early and embed employment reforms into the recovery, Government has signalled the Bill remains paused.
We are calling for the Employment Bill to create new rights to more secure work, make flexible working the default, and deliver on the commitment to a well-resourced single enforcement body. While the economy is weak it might seem a risky time to call for such reforms. Of course, the risks must be carefully considered, but our judgement is that these risks are small, and when weighed against the expected benefits of the Bill they do not justify pausing progress towards higher-quality work.
It is essential the Bill is not put on hold and is brought in this Parliamentary session. Here are three reasons why the benefits outweigh the risks:
First, there are benefits to acting now that are underappreciated. The recovery from the last UK recession was characterised by poor productivity and persistently high in-work poverty. While many factors contributed to this, the common use of insecure working arrangements trapped many workers in poverty and likely played a role in limiting productivity growth. Pausing progress on good work risks repeating the same errors, at the expense of those already struggling to stay afloat.
As attention shifts from crisis management to securing a strong economic recovery, there is an opportunity to make sure greater security for workers is built into the economy we return to. Rather than considering reforms once we’ve returned to a labour market with the same flaws as before COVID-19, pressing ahead with the Bill now signals to businesses the changes expected of them and gives them the chance to build these into their post-pandemic ways of working.
Second, by the time the Bill has been passed and implemented we expect a stronger economy and labour market. If tabled in October this year and debated for 12 to 14 months, we would not expect the Bill to be finalised and implemented until autumn or winter 2022. By then, both the latest OBR and Bank of England forecasts (published March and May 2021 respectively) expect the economy to have returned to, and outgrown, its pre-pandemic size. The unemployment rate is likely to take longer to recover - its forecasted peak is not until later this year when furlough ends - but is expected to be well on its way to recovery by the end of 2022. If the reopening is reversed and the recovery slows, a lead-in time could be scheduled to give the labour market more time to strengthen.
So, it is perfectly possible to press ahead with the Bill without putting in place new reforms during a recession, or period of high unemployment. By the time the Bill comes into force, and any lead-in time for new measures has elapsed, businesses will have had time to recover and prepare to bring in new measures. Starting now will signal the kind of recovery we all want: one built on good jobs.
Third, we do not expect the specific reforms we recommend for the Bill to have a negative impact on the aggregate economy. For most businesses, the number of employees affected by the reforms will be small so any adaptations will also be small. There will be a minority of businesses who rely much more heavily on less secure forms of work, concentrated in the hospitality, entertainment and education sectors. Their costs will likely rise due to the Bill. Rather than being able to cancel shifts on the day, they will need to give additional notice or pay compensation. Work patterns will need to be arranged further in advance. For most this will be a manageable change, so we do not expect it to cause significant negative economic consequences – such as lower employment – at the aggregate level.
Nor do we expect the Bill to materially impact the UK’s standing as a flexible labour market. The OECD’s employment protection legislation rating – one of the most-cited measures of flexibility – will remain unchanged. Flexible contract types, such as zero-hours and casual contracts, will remain an option for businesses that need to respond to rapidly changing demand, but the degree of flexibility will be reduced.
Even so, the new measures should be approached with the same caution and rigour as accompanied the introduction and raising of the minimum wage. Further research and consultation on the possible impact of the Bill should inform policy design and be used to limit unintended consequences and support businesses to move to more sustainable business models. After implementation, evaluations should monitor the impact the Bill is having on businesses and workers.
Concerns about the economic risks of the minimum wage prevented its introduction for many years. In the end, they have been proved wrong, and it has been possible for a carefully designed wage floor to benefit millions of workers without significant economic costs. Similar fears now risk stalling the Employment Bill, depriving low-paid insecure workers of the right to more security and stability. While it is right to be cautious about new regulations and consider risks as well as benefits, our judgement is that the current economic climate should not prevent action on the Bill.
As with the factory acts of the 19th century and the minimum wage legislation at the end of the 20th century, society has periodically needed to use regulation to strike out business models that rely on unnecessary suffering. As our economy, like those around the world, undergoes profound shifts – from COVID-19, Brexit, climate change and technology – we will need the Government to do the same again. We should start with the Employment Bill.