When it comes to employment reforms, Labour is going too far, too fast

With the economy not yet out of the woods, James Moore warns that Labour risks hurting those it is trying to help with its changes to sick pay, parental leave and the ban on zero-hour contracts

Britain’s labour market is not a happy place. Job vacancies have been falling fast, with unemployment moving steadily upwards – a trend set to continue. Unemployment is a lagging economic indicator, which starts to show itself after the leading ones have turned sour. The recent deterioration in the performance of UK plc – which has been showing low or no growth – tells us there is more pain to come and government policy is a contributing factor.

Labour’s means of plugging the £20bn hole in the public finances it was left with was to tax jobs by raising employer national insurance contributions. Warnings of redundancies and price rises swiftly followed. It is against this backdrop that Labour has unveiled its “new deal” for workers, marketed as being good for employers and employees. Employers beg to differ and Labour’s love-in with business – capped by the endorsement of 121 founders, chief executives, and former leaders in a letter published in The Times during the election campaign – has soured quicker than a Hollywood marriage.

The “new deal” package is playing into that. Critics are asking what happened to all those honeyed words about working with business to achieve the growth Britain desperately needs. Peter Cheese, chief executive of the Chartered Institute of Personnel and Development (CIPD) described the Employment Rights Bill as “the greatest shift in employment legislation in decades”. Among its provisions is the ability to sue for unfair dismissal on day one – although there will also be a statutory probation period so suitability for a role can be assessed.

Workers will be able to immediately ask for flexible working, which the government wants to be the default. Sick pay will be available from the first day of illness and more attention paid to unions if workers ask. Zero-hours contracts are history – unless employees want them. Parental leave is to be enhanced, also from day one. Bereavement leave too. Employers will be required to protect staff from harassment or abuse.

The bill for this lot could cost as much as £5bn and it is worrying businesses, especially the smaller ones which lack well-staffed HR functions. As the CIPD’s boss more or less said, there is an awful lot for firms to grapple with. This, coming at a time of low growth and high interest rates, means many are struggling.

However, some of the measures aren’t as scary as they’ve been made to look. The UK had been an outlier with its two-year wait before people could claim unfair dismissal – it was a year under Tony’s Blair government. Taking an employer to a tribunal is slow, difficult and expensive so I question whether making it available immediately will result in an influx of cases.

Some ticking time bombs are lurking in the proposed legislation. Take the end of the “single establishment” rule requiring consultations if an employer plans to make 20 or more people redundant at a single site, an individual factory or office, for example. Critics say if you apply this on a whole business basis it will leave larger firms in a continual state of company-wide collective consultation over redundancies at struggling sites. Making it unfair to fire a worker for refusing to agree to variations in their conditions seems like a sound idea. But it could result in bosses pushing the redundancy button more quickly.

The law of unintended consequences hangs over any new piece of legislation. There is a real risk here of the government hurting the very people it wants to help. Small wonder that the CIPD has urged the government to consult “thoroughly with employers to ensure that proposed changes to employment law don’t negatively impact organisations or workers”.

I particularly worry about the impact on vulnerable people if employers respond by adopting more conservative hiring practices, focusing on “safe” or “low risk” hires. This could add an extra layer of difficulty to an already fraught situation if you happen to be in a group deemed “risky” such as those of us with disabilities. Older workers too.

The rate of employment for disabled people is 53 per cent, according to the charity Scope. Disabled people are almost twice as likely to be unemployed as non-disabled people, and three times as likely to be economically inactive. More than a million want work but can’t find it.

If this makes it harder to be hired, it would stand as a damning indictment of the bill and impede government attempts to improve the situation and to reduce the number of people deemed “economically inactive” as a result of disability or ill health.

There are more than 30 further reforms planned after the passage of the bill. If the government wants growth, it would do well to pay a little more heed to the businesses which it needs to provide it. This is a bill that could be beneficial if sensibly constructed but horribly detrimental if it goes wrong. Ministers would be wise to proceed with caution and move forward on a more incremental basis.

The big bang approach runs the risk of blowing everything up – including Britain’s growth prospects.