Small Talk: Zero-hours contracts? Key for growth

Depending on whose figures you use, small and medium-sized enterprises account for between 60 and 70 per cent of jobs in the UK economy, and are behind as much as two-thirds of new job creation.

It’s not rocket science, therefore, to work out that any economic policy that makes it more difficult for SMEs to take on new staff is going to have a detrimental effect on unemployment. In an economy such as ours, with high levels of joblessness, particularly among young people, this is the last thing we need.

For this reason, we should be nervous about the growing clamour to ban zero-hours contracts. For while exploitative employers should be ashamed of themselves, such contracts can be a valuable tool for SMEs as they pursue growth – and the employment opportunities that this growth will create.

As they expand, many small businesses are confronted by a catch-22 dilemma. They don’t have the staff they need to take on new business, but they can’t afford to take on additional staff until that business is secured. They don’t have the financial headroom to risk having a labour force that is not fully employed at all times.

Zero-hours contracts are just one way that many SMEs are able to confront this dilemma. They suit, for example, the small catering business whose engagements are unpredictable and come in at short notice.

They work well for businesses where the demand is seasonal – the retailer whose customers multiply in the run-up to Christmas, say. They are ideal, in fact, for any small business that doesn’t yet have clear visibility about the level of consistent demand there will be for its products and services.

That is not to say zero-hours contracts should be a default option for a growing business. Nor is there any excuse for breaking the rules, which already prohibit employers from requiring those on zero-hours contracts to accept the work they are offered or from preventing workers accepting work from other employers.

It feels wrong that so many large companies appear to be making use of zero-hours contracts. Nevertheless, we must recognise that if you run a small business with only a handful of existing employees, taking on new permanent staff represents a big risk.

Reversing the process by shedding these staff is expensive and uncomfortable – as it should be, given the impact on the people losing their jobs.

The jury is still out on whether our economy is now in recovery mode, but it seems likely that growth over the next few years will be stop-start. In that environment, small businesses feel even less inclined to expand their workforces on a permanent basis.

Last week’s admission by the Office for National Statistics that it has under-estimated the number of Britons on zero-hours contracts was unfortunate – and though it has published a revised estimate, it clearly doesn’t have a handle on this data. That is fuelling the suspicions of trades unions and others who fear employers are opting for zero-hours contracts for exploitative reasons.

The announcement last month of a review of these contracts by Vince Cable was sensible: not only do we not have a clear picture of how many people really are being employed on these terms, but also, some of the nitty-gritty of their status in employment law is not properly defined.

Still, we should beware the rule of unforeseen consequences. One reason that many SMEs now make more use of zero-hours contracts is that the Agency Worker Regulations introduced in 2010 made it tougher to hire temporary staff.

By all means let’s clarify the legal status of zero-hours contracts and take action against those employers who abuse the rules. But let’s also recognise that there are people working for small businesses on these contracts who would probably otherwise be out of work. In time, here’s hoping those people will move on to permanent work contracts. But let’s not make it more difficult for small businesses to offer paid work by banning zero-hours contracts.

Oil exploration investment for AIM newcomer

Small Talk first featured Africa Oilfield Logistics ahead of its Aim float in June, since when its share price has drifted up by 10 per cent or so.

Now the business, run by the oil exploration veterans Phil Edmonds and Andrew Groves, is poised to make its first investment. It is buying a 49 per cent stake in Ardan Risk & Support. AOL is paying for the stake with $4m worth of its own shares, and has the exclusive right to buy the rest of the company over the next 180 days.

Ardan already has a presence in the Rift Valley, where businesses such as Tullow and Africa Oil are already operating – meaning opportunities to sell the logistical services that AOL and Ardan provide.