Employment Regulation after Brexit

Posted in: Brexit, Business and the labour market, Economics, UK politics

Dr Susan Milner, Reader, Department of Politics, Languages and International Studies

Most of the recent media commentary on the House of Lords’ repeated defeats of the government, by their voting amendments to the Withdrawal from the EU bill, has focused on the nature of the future customs relationship between the UK and the EU. This question is of course a fundamental one, standing at the heart of the UK’s trading position after Brexit. Other amendments have been significant, too. The House of Lords has seen cross-party moves to restrict the government’s ability to use ‘Henry VIII’ powers, that is, to adopt changes to secondary legislation by regulation without going through parliament. On 18 April Baroness Hayter’s amendment, seeking to establish enhanced parliamentary scrutiny for some areas of secondary legislation such as employment and equality rights, was adopted by 314 votes (including 14 Conservative)  to 217. Although the House of Commons previously voted down a call for enhanced protection, it was by a small majority, so it is not inconceivable that the government could be forced to concede parliamentary scrutiny in the final vote. As the battle over so-called ‘Henry VIII’ powers show, the question of employment regulation is highly politically sensitive after Brexit.

Since the referendum on EU membership in June 2016, employment levels in the UK have continued to rise, and unemployment (in November 2017) to fall from 4.9% to 4.3%, the lowest level since 1975. Strikingly, though, despite the strength of the labour market, purchasing power remains weak, with little change over the last year despite a recent increase in real wage growth. In addition, productivity growth remains stagnant. In the continued post-2008 economic downturn, employees have traded wage growth for job security, whilst at the same time flexible forms of working have increased. Has the UK reached peak flexibility, though, as some have claimed? Such arguments may be premature. Full-time employment has risen in the most recent period, with some fluctuation, but part-time and non-standard forms of employment also continue to increase. Employment and unemployment rates also vary markedly across the UK. Meanwhile self-employment continues to grow, and contributes a disproportionate share to total employment. This is particularly true of the four million independent self-employed, working alone or with a partner but with no employees. This group of self-employed people is under-researched but evidence suggests that they experience considerable income variation and earn on the whole less than workers in employment.

Earnings variability is even more starkly seen in contracts with no guaranteed minimum hours (zero hours contracts). According to Labour Force Survey (LFS) LFS data, the number of workers on zero hours contracts rose markedly after 2011, although some of this increase may be due to higher awareness of these contracts rather than changed situations, and the number of employees working to these contracts has remained stable over the last year at around 900,000 people. In some industries such as hotels, catering, administration,  transport, construction, wholesale and retail significant and growing proportions of workers are employed on zero hours contracts. The insecure nature and income unpredictability of zero hours contracts, as well as the benefits in terms of time flexibility, are a wider feature of the labour market, and are enabled by technological change which is likely to intensify the disruptions we have seen over the last few years.

Unsurprising, given their scale and nature, labour market changes since 2008 have raised questions about the best way to regulate employment so as to protect living standards, whilst also allowing the kind of flexibility which benefits both employers and employees. Matthew Taylor’s report on modern employment practices, commissioned in October 2016 and published in July 2017, refers to principles of fairness and the need to tackle exploitation, and the potential for exploitation, at work. But it also discusses how ‘one-sided flexibility’ can hinder investment in skills and productivity, as well as hollow out public finances by failing to provide resources for public health and infrastructures.

The government has pledged support for the recommendations of the Taylor report, launched consultations on rights for workers on zero-hours contracts, and pledged to give consideration to the quality as well as the quantity of jobs in its Industrial Strategy. The consultation is likely to show diverging views on whether and how to regulate extreme forms of employer-oriented flexibility, with some employer groups and politicians on the right arguing that the gig economy should not be stifled by regulatory restrictions, or that abuses are isolated cases. It seems clear, on the contrary, that technological advances will make it ever easier to trap workers in long-term extreme insecurity. The function of regulation is to keep pace with such changes in order to help find ways out of these insecurity traps, for example by setting minimum wages and basic standards for working conditions, as well as provision for health and other social risks.

A number of reports published recently have drawn attention to the abuses which can occur. In its first full report since it received new powers to investigate the most extreme forms of exploitation, slavery and human trafficking, the Gangmasters and Labour Abuse Authority found a high risk of mistreatment in no fewer than 17 sectors of the economy. Sir David Metcalf’s report on companies’ compliance with workers’ rights on the minimum wage and holiday pay also found that in some sectors even well-known large businesses with good reputations rely on supply chains which can include hidden forms of mistreatment of vulnerable workers. The report shows how traditional forms of regulation have been eroded, whilst new forms of employment have made the labour market more complex and opaque.

All of this shows that employment regulation is not just a technical issue that can be managed quietly by the back door, without parliamentary debate. Indeed, it is time for a wider discussion about living standards, decent work and flexibility which works for both employer and employee. The consultation on the Taylor report recommendations will outline the position of key actors such as large and small employers, and trade unions, and is a welcome first step. Whatever the outcome of the Brexit negotiations we need to be thinking now about the labour market of the future and not just accepting that technological changes means jobs, and a living wage, are only for the fortunate few.

This blog post is part of the Brexit, Money and work series, a new series of IPR Blogs with a focus on employment and skills, trade and business, industrial strategy, tax and pay that highlights some of the crucial issues policymakers may face in the coming years. Subscribe to the IPR blog to get the latest blog posts, or to keep up to date with our activities, connect with us on TwitterFacebook or LinkedIn.

Posted in: Brexit, Business and the labour market, Economics, UK politics


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