The Plan to Make Work Pay Will Harm Struggling Businesses
Labour’s New Deal for Working People, which aims to strengthen workers’ rights, end fire and rehire, put an end to flexible contracts, strengthen trade unions and raise the minimum wage, is an attempt to tread the tightrope that exists between pleasing both the unions and big business. But it risks frustrating growth and productivity gains.
Take for instance, the Plan’s pledge to make pay ‘fair.’ Raising tips for frontline hospitality workers, raising the minimum wage to a level that constitutes a ‘living wage’ and of course will ostensibly sound like a good idea, but will squeeze the bottom line of pubs, bars, cafes and restaurants. The hospitality industry continues to struggle post-COVID – with over 3,000 pub club and restaurant closures in the UK since 2017 - and being unable to reinvest tips will only add insult to injury.
Similarly, raising sick pay and the minimum wage will pose a real challenge to businesses – both large and small – and frustrate efforts to keep businesses afloat in a difficult economic environment. The consequences will be twofold: first, it will make life more difficult for individual businesses which are trying to stay afloat and secondly, it promises to push the innovative businesses that fuel British growth out of the country as they seek more supportive and growth-friendly political environments. It speaks volumes that M&S Chairman, Archie Norman – who knows a thing or two about attracting investment and driving growth after returning M&S to the FTSE 100 last year after a four year absence - spoke out against the plan, urging Labour to “consider carefully whether a package that reduced flexibility, makes it more costly to hire people, and seeks to bring unions into the workplace will help attract new investment”.
Meanwhile, the plan to strengthen trade union powers by repealing the Trade Union Act 2016, the Minimum Service Levels (Strikes) Bill and the Conduct of Employment Agencies and Employment Businesses (Amendment) Regulations 2022, will make it easier for trade unions to strike and and removing restrictions on strike ballotting. As both history and the state of play across the English Channel illustrates, unions are diametrically opposed to productivity, increase consumer prices and carry the ability to bring entire nations to a standstill. For instance, the gilets jaunes protests of 2018 paralysed France for roughly a month and only came to an end once President Macron reluctantly passed an eye-watering €10 billion package of policies, including a €100 per month rise in the minimum wage for roughly five million French households. Empowering unions to the extent that Labour’s Plan vows to could well see the aforementioned disruption and costly concessions make the 20 mile hop across the Channel.
Despite generating - at least in the short- to medium -term - a wage premium, to name just one of the idealistic visions of unionisation, the strengthening of Britain’s unions promises to distort labour supply, restrict employment flexibility and limit research and development (R&D). Restricting flexible employment not only disincentivises productivity as employees are contractually locked-in regardless of personal performance, but it also makes firms less likely to employ experts, who are required, but only on an ad hoc basis - frustrating innovation in the process.
Furthermore, as Hirsch’s research in the 1980s found, the wage increases brought about by unions in essence serve as a tax on any return on investment. If a firm performs well, unions invariably demand a wage increase, and above competitive levels. Once again, this disincentives productivity and inhibits R&D, as return on investment is forcibly channelled into meeting union demands rather than into innovative and growth-stimulating R&D. What’s more, with improved R&D comes more consumer-friendly services and products, which stand to improve the standard of living of the average joe.
Plans to ban unpaid internships will also have myriad adverse effects. The 58,000 unpaid internships offered annually in the UK afford the country’s youngest, most ambitious and curious young people exposure to the workplace across a variety of industries, helping them decide which industry and role is best suited to them while also improving their employability. Equally, it allows companies to discern whether an individual could add value to their firm before investing in them; it’s always a risk for a company onboarding a new employee, who, to a degree, is an unknown quantity at the beginning of their career. Considering some companies simply don’t have the cash to offer paid internships, outlawing free ones would be at the expense of growth, productivity and recruitment and the employability and education of our youth, all the while stymieing social mobility.
Rather than loosening rules for disruptive trade unions, banning flexible contracts, and making it more expensive for businesses to operate, the next government should aim to incentivise small businesses to take on new employees, cut taxes for working people, and grow our economy, creating more high-quality employment opportunities in the process. At a time when our tax burden is at a historic high and the regulatory state encroaches on every area of economic life, more tax and more regulation surely cannot be the answer. Let’s learn from our cousins in Australia and America, who continue to record admirable year-on-year growth, instead of hopping along in the froggy footsteps of our French neighbours.
Louis Plater
