Has employment regulation become less burdensome?

Last week I took part in an ESRC-sponsored seminar at Newcastle University on the regulation of work.  The seminar explored a number of different perspectives on regulation in the workplace.  My own talk focused on how regulation affects firms and whether it was a stimulant (creating the conditions for modernisation of the workplace and the employment relationship) or an irritant (placing unnecessary and unwanted demands on managers, diverting their time away from growing the business). 

My reading of the evidence is that there's little evidence of employment regulation putting 'new zip into British industry' as George Brown said he would do fifty years ago when launching the National Plan.  That's mainly because of the weight that governments of all political complexions have attached to the principle that regulations are a burden on business (the irritation factor).  As a result, for better or worse, legislation has been designed to go with the grain of employment practices rather than challenge them.

The interesting thing is that the proportion of businesses that sees regulation primarily in a negative light - as a cost or a 'burden' that is best avoided - appears to be falling.  This applies to employment legislation as well as regulation in general.

Since 2007, the National Audit Office have commissioned a series of Business Perceptions Surveys that have included questions on regulation.  The latest survey took place in 2014.  Participating businesses were asked to name the greatest challenge facing their business.  The chart below shows that the most common answer (given by 45%) was attracting and retaining customers.  Complying with regulations was selected by 11%, just above recruiting and retaining staff (9%) and just below accessing finance (12%).  The graph in the upper right hand panel shows that the proportion identifying compliance with regulations as the single biggest challenge increased between 2007 and 2010 before then starting to fall again.

BIS also commission a regular UK-wide Small Business Survey.  The latest survey took place in 2014 and interviewed over 5,000 businesses with up to 250 employees.  Respondents were asked to identify obstacles to the growth of their business and select the one they felt was most important.  The chart below shows that, in 2014, 49% of respondents thought regulations were an obstacle which made it the fifth most commonly chosen descriptor (after the economy, competition, red tape and late payment - and third in this list until 2012, because the red tape and late payment options were only introduced in the 2014 survey).

The most noticeable feature of these data are the extent to which the economy increased in importance as a barrier to growth in 2010 and 2012, especially when businesses were asked to choose the single most important barrier (shown in the table below).  This underlines the importance of demand.  If the economy isn't growing and customers don't want to spend more, supply-side constraints such as regulation or skills become secondary considerations.

Small firms who said regulation was the single most important obstacle to growth (in 2014, 6% of small firms with employees) were then asked to say which type of regulation was the biggest obstacle.  In 2014, 10% of these selected employment regulation, 3% selected working time regulations and a negligible proportion (less than 1%) selected the National Minimum Wage.  In other words, less than 1% of all small firms said employment regulation was the biggest obstacle to growth they faced.

The NAO Business Perceptions Surveys also suggest that employment regulation does not routinely feature at the top of business concerns about regulation.  The chart below shows the average number of person days each month that businesses said they spent meeting the requirements of various types of regulation.  At an average of 2.2 days per month, employment regulation lies well behind items such as food safety or health and safety legislation.

The same survey also found that the proportion of businesses who described various aspects of compliance with employment regulations as 'a burden' fell between 2012 and 2014. 

Another indicator that employment legislation might be a less pressing problem for business comes from the behaviour of business associations and free-market inclined think tanks.  During the 2000s, the British Chambers of Commerce wheeled out a Burdens Barometer each year which quantified the total cost to business of regulations introduced since 1998, based on government impact assessments.  By April 2010, this had reached £88.3 billion.  Since then, however, the barometer seems to have taken a career break - perhaps a low pressure front has been washing over the UK?

In its first two years in office, the Coalition continued to face criticism for its (apparent) lack of zeal in tackling 'red tape' (here's a typical example).  The Institute for Economic Affairs frequently included a call for labour market deregulation in their commentaries on the latest statistics or policy announcements (here's an example).  But since 2012 or so, there's been a lot less criticism of employment law from these quarters.  It's noticeable that the IEA's Alternative Queen's Speech for the new parliament made no reference to employment rights.  The Conservative Manifesto promised changes to the rules governing industrial disputes including minimum thresholds for the proportion of eligible members participating in a ballot and (for some industries) the proportion voting in favour of proposed industrial action, which the government included in the Queen's Speech.  However, the Manifesto contained no new proposals for legislation to change individual employment rights.  Proposed regulations requiring large companies to report pay differences by gender and regulations to tackle the use of exclusivity clauses in zero hours contracts implement decisions taken by the Coalition government.

So what lies behind employment legislation slipping down the business worry list?  One reason might be the recession.  When firms are struggling to find customers and keep their heads above water, perhaps they see the requirements placed on them by regulations in a different light?  This would account for the sharp increase in economic factors being reported as a barrier to growth during the period between 2009 and 2012.  However, employment has grown strongly over the last three years.  Firms have been taking lots of people on and they clearly don't see regulation as a major factor stopping them from doing this. 

This might be because the Coalition government made a number of "business-friendly" changes to employment legislation during its time in office.  These included a reduction in the qualifying period for unfair dismissal, reductions in the consultation periods for collective redundancies, various procedural simplifications (such as in how employers handle requests for flexible working) and, most controversially, the introduction of fees for Employment Tribunal hearings.  According to BIS, while employment regulation introduced between 2010 and the end of 2012 came with a small net cost, the net effect of legislation introduced during 2013 and 2014 was a cost reduction of £68 million a year.

We should remember that the 2000s saw the introduction of many new pieces of employment legislation, quite possibly too much, too quickly for business to absorb painlessly.  In contrast, the recession has cast a long shadow over this decade.  There's been less new legislation and what there has been has, in some cases, been demonstrably beneficial to business.  So it's no surprise that business concerns have eased, even if they're never entirely lifted.


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