What does the outcome of the general election mean for business and HR?

By Mark Beatson, CIPD Chief Economist, @MarkBeatson1


Last month month, I had the pleasure of joining the Northamptonshire branch for their Annual General Meeting, where I offered some thoughts on what the outcome of the General Election might mean for business and HR.

The outcome might have come as a surprise if you had been following the media or the polls but less so, apparently, if you had been following the betting markets, which saw a lot of late money on the Conservatives.  The new government has a small majority in the House of Commons.  It is unlikely the government will lose a confidence vote even if it did lose its majority through by-elections because that would require all the other parties voting against (and remember that Sinn Fein MPs don’t vote).  However, the Conservatives have just 224 peers in the House of Lords (out of 781), so they are likely to face difficulties in getting legislation through the Lords (or delays if using the Parliament Act).  Greater weight than usual may be given to commitments made in the Conservative Manifesto as the convention is that the Lords do not oppose these.

On Wednesday 8 July, the Chancellor will deliver another Budget.  This will be accompanied by another economic forecast from the Office for Budget Responsibility and he may revisit the future spending plans announced in March’s Budget.

In our view, the number one economic priority for the coming five years has to be raising UK productivity.  This was a topic singularly absent from the March Budget when productivity wasn’t even mentioned.  However, the Chancellor has suggested that productivity will feature in the forthcoming Budget.  A serious, strategic and integrated approach to productivity joining up all the government levers is what the UK needs.  As does both patience and persistence: the UK’s productivity weaknesses are deep-rooted and progress will take time to become visible.

There are other decisions that will need to be taken by the new government that could have a material effect on productivity:

·         Its response to the Davies Commission report on airport capacity;

·         Whether it continues to press on with HS2; and

·         Its approach to devolution, not just new powers for Scotland but decentralisation to English city regions etc.

Even if the precise numbers change in the Budget, it’s clear that more fiscal consolidation is on its way, primarily through spending cuts.  That means further reductions in public sector employment: according to the OBR forecast made at the time of the March Budget, the number of public sector jobs is forecast to fall by almost 800,000 between 2014/15 and 2018/19.  The government has not yet made it clear if it will continue the policy of pay restraint in the public sector adopted by its predecessor.  In the short term, with CPI inflation now negative, this may not be a particularly pressing issue as even a 1% pay increase is a real terms pay increase.  However, if productivity and pay do start to increase in the private sector, the question is whether this leads to levels of skill shortages and employee discontent in the public sector that threaten effective service delivery?

A question in a recent Labour Market Outlook found that 11% of public sector employers thought employee morale was higher at the end of 2014 than it had been in 2010 whereas 63% thought morale had declined.  Pay restraint, job cuts and increased workload were seen as the main causes of falling morale.  Civil Service and NHS staff surveys suggest engagement has been edging up since about 2012/13 but this trend may not last if further job cuts are required from 2016/17 onwards.  Delivering better public services with less people and money will require transformational change rather than ever more cost-cutting, and we are talking to PPMA and LGA about how we can support public sector HR leaders.

On Wednesday 27 May, the Queen’s Speech announced the legislative programme for the next year.

As expected, the Queen’s Speech included a bill to hold an EU Referendum Bill to implement the government’s commitment to an in/out referendum by 2017.  The ‘in’ option may be with renegotiated terms of membership.  Whether terms can be negotiated capable of attracting a positive recommendation from the UK government will depend on the demands made by the UK, the attitude of other Member States and the Commission and on political and economic events elsewhere in Europe (such as whether Greece is still a source of anxiety and irritation, elections in France and Germany due in 2017).  The consequences of an ‘out’ vote are unlikely to be clear in advance.  Prepare for a long and probably not very illuminating campaign!

The Queen’s Speech also set out a commitment to legislate in order to reduce the costs of ‘red tape’ by £10 billion over the course of the Parliament.  A review of Business Rates and the establishment of a Small Firms Conciliation Service (likely, we think, to focus on B2B issues like late payment rather than impinging on ACAS’s role) are also part of a package aimed at simplifying the environment for small firms.

All the main parties included commitments to more Apprenticeships in their Manifestos.  The Conservatives committed to 3 million places over a five year period and to removing employer NIC contributions for apprentices under 25 years old.

The government has also stated its intention to reduce welfare spending – more details may emerge in the Budget – although it is not yet clear how much this will affect people on in-work benefits apart from the existing commitment to freeze welfare benefits for 2 years.  The government has said it will implement the Low Pay Commission’s recommendations for increasing the National Minimum Wage this October and supports a minimum of £8 per hour by the end of the decade – the latter is probably consistent with a NMW increasing gradually in line with average earnings rather than requiring a significant ‘over the odds’ increase.  The Conservative Manifesto also supports the Living Wage for those employers who can afford to pay it, although there are no indications what that means in practical terms.

The Manifesto re-iterated the coalition government’s intention to end exclusivity clauses in zero hours contracts but it contained no other proposals to change the content of individual employment rights.  It did, however, propose changes to the legislation governing trades unions and industrial disputes, suggesting that, to be valid, strike ballots would require more than half of the members affected by the dispute to have taken part.  A higher threshold of 40% of members voting in favour of industrial action was suggested for disputes in health, education, fire and transport.  There is also a proposal to repeal the legislation banning the use of agency staff to replace striking workers and language on making the ‘opt-in’ process for trade union subscriptions more transparent. These proposals were also outlined in the Queen’s Speech.

Finally, the Manifesto also confirms a commitment made by the Prime Minister during the campaign: people working for a ‘big company’ or in the public sector would get a new workplace right to spend up to three days a year on volunteering leave at full pay.

It’s also worth noting what was not in the Conservative Manifesto.  There is no mention of the proposals outlined in the Beecroft report for no-fault dismissal.  Since the election, Ministers have avoided ruling out the possibility of pursuing this agenda but the lack of any mention in the Manifesto could make it difficult to get any such proposals through the Lords even if they made it through the Commons.

Nor did the Conservative Manifesto ‘join up’ skills and industrial policies in the way we called for in our Manifesto for Work.  The commitment to more Apprenticeships is welcome but what kind of apprenticeships, delivering what kind of training, in which industries?  And how do these plans for more Apprenticeships align with any other government support for improving workforce skills and innovation?

Likewise, there is an absence of any framework for lifelong learning that will allow people to equip themselves with the skills needed to adapt to change over the course of what might be a fifty year working life.  Government support is concentrated on the young and on those claiming out of work benefits.  This is not meant to single out the new government for criticism - all the major parties’ Manifestos left plenty of room for improvement in this regard – but we will be urging the government to think more strategically about these issues as it determines its policy and spending priorities in the coming months. 






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