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Burdens on business in the UK

A reasonable starting point in analysing the business case against regulation is the report of the Better Regulation Task Force (BRTF) published in May 2002 on employment regulation in the UK [5] . The BRTF is an independent advisory group established by the Government in 1997 and it terms of reference are 'to advise the Government on action to ensure that regulation and its enforcement are transparent, accountable, proportionate, consistent and transparent'.

Some of the report’s more constructive recommendations were directed at improving the Government’s policy-making machinery and the information and advice provided to employers. However, one of the main recommendations, and much of the thrust of the BRTF report, was focused on ways in which the Government should endeavour to find alternatives to regulation in order to achieve policy objectives. It was argued that regulation was too onerous for business and would hold back the growth of the UK economy. The Government’s response to the BRTF report agreed that 'regulation is not the only means of stimulating change in the labour market and it may not always be the most effective or efficient means' and that the DTI had recently 'reinforced the message that alternatives to regulation and better regulation will be a major focus for all policy development in the Department'.

However, the Government’s response also stressed two points that the TUC believes are key to this whole debate. First, it said that the range of employment rights introduced since 1997 were designed 'to establish fair standards for employees and prevent good employers being undercut by the bad' and that the strong labour market performance in this period showed that 'there is not a contradiction between job creation and greater rights at work'. Secondly, it argued that 'where it needs to [it] will regulate in ways that also support full employment and higher productivity'.

• At the same time as the Government published its response to the BRTF report, it released a research report undertaken by The Small Business Research Centre at Kingston University [6] . The authors warn that many of the surveys undertaken by some employer organisations representing small firms should be treated with caution because of methodological and sampling weaknesses. For example, respondents to business surveys are largely self-selecting since those with the strongest views (or prejudices) are most likely to respond - especially in the small firm sector. Much of this so-called evidence is not necessarily representative of business attitudes and priorities as a whole.

• This proposition was tested by conducting an independent survey of business attitudes to regulation using a properly controlled sample. Respondents were asked to identify the most important factors affecting business performance. Only around one in six (17 per cent) of respondents cited government legislation or regulations as the most important factor. Moreover, this category covered all legislation/regulations affecting business, so the percentage of employers specifically blaming employment regulation was even lower. In contrast, a third of employers said that the main constraint was competition with another 50 per cent citing a range of reasons of which financial considerations (e.g. cash flow, debt, rents, interest rates) were paramount. The authors conclude that their 'results show that the impacts of individual employment rights on small firms are not widespread.'

The research also found that a substantial minority (around a third) of small-business employers perceived that employment rights had a positive impact on business performance. Twenty per cent said that these regulations provided them with guidelines and clarification in setting terms and conditions for their employees and around 10 per cent said they 'raised staff morale and engendered a feeling of security'. In other words, more employers saw regulation as good for business than believed that regulation hampered entrepreneurship and business growth. This is a carefully designed study which is much more reliable than the self-selecting surveys peddled by the CBI, the IoD and the BCC. As such it is a much better guide to the business impact of regulation than the essentially anecdotal evidence presented by employers’ organisations.

Many of the negative perceptions of regulation identified by the DTI were concentrated among certain types of small businesses. For example, employers in the hospitality and retail sectors were more likely to ascribe negative effects on business performance to maternity benefits, extension of rights to part-timers and the minimum wage precisely because their employees were more likely to be female, working part-time and earning low pay.

This finding begs the question as to whether these employers were genuinely citing negative effects on business performance or whether they were simply expressing their annoyance that these minimum standards deprived them of the ability unilaterally to impose poor employment conditions on their employees.

One final key finding is that although the bulk of [small business] employers tended to be vague in their knowledge of employment rights, they were prepared to be critical of the effects of this legislation on their enterprise. The authors suggest that this may be because 'many owner-managers are resistant to external guidance or advice, let alone legislation, and even without knowing the detailed effects many start with a negative disposition [our emphasis]'. In addition, the authors also suggest that negative attitudes towards other government interventions such as taxation may be bound up with their negative perceptions of the impact of employment rights on business performance. A simple way of summarising this finding is that employers’ prejudices are more influential in shaping their responses to regulation than a sober assessment of the real business impact.

If the recommendations presented by the BRTF were to be applied in practice there can be no doubt that many of the serious problems affecting people at work would be left unaddressed. In particular, the desire of most British workers for more flexibility and choice in their working time arrangements would simply be ignored

The evidence for this rather depressing view comes from the Working in Britain Survey sponsored by the ESRC’s Future of Work Programme. One of the most challenging findings for employers is that 'managers are pragmatic enough to adapt to change in the way they treat their employees when it is required of them but few seem willing to take any positive initiative to introduce workplace reform to meet worker demands or aspirations' [7] .

In other words few managers will voluntarily do more than the legal minimum, even when it would be in their interests to secure the commitment and loyalty of their workforce by offering better conditions. The results on attitudes to family friendly employment are particularly disappointing: 'there are precious few signs that most employers in Britain are planning in the near future to improve benefits for employees with specific family responsibilities beyond the bare legal requirement' [8] . Reliance on exhortation alone to secure significant change appears to be largely a waste of time and effort.

The Working in Britain findings also highlight concern amongst employers about the increased time and cost of litigation over employment rights. This is not specific to the reforms introduced since 1997 and often involves legislation on unfair dismissal that has been on the statute book for thirty years. Employers like to blame the rise of the 'compensation culture' in British society - and clearly there has been an increased tendency to turn to use the law to secure redress. However, in the labour market this is the price that employers have had to pay for the decline in collective bargaining and the reduction in effective workplace representation. Nature abhors a vacuum, and in the absence of anything better the courts and tribunals are increasingly being used to settle grievances that previously would have been dealt with through agreed internal procedures. Collective agreements make it less rather than more likely that individuals will take firms to industrial tribunals because they underpin and encourage best practice and provide procedures for settling individual grievances effectively within the firm.

The obvious danger is that the non-organised sections of the labour market will increasingly resemble the United States where firms and managers have to contend with expensive and uncertain court cases rather than the certainty of statute and the flexibility and efficiency of workplace negotiation. Those who complain about the costs of regulation by statute in the UK and Europe should look more carefully at the escalating legal costs incurred by many US employers.

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