Liblink: Vince Cable – Complete nonsense to suggest reducing labour rights to beat the recession

In today’s Sun (scroll down), Vince Cable tears into those who would reduce labour rights to try to beat the recession:

Some people think that if labour rights were stripped down to the most basic minimum, employers would start hiring and the economy would soar again.

This is complete nonsense.

British workers are an asset, not just a cost for company bosses.

That is why I am so opposed to the ideological zealots who want to encourage British firms to fire at will. Those who want to shake up the law need to realise that the days in the 70s and 80s when the unions ruled the roost have long since gone.

I talk to big and small businesses every day and none of them tell me that their biggest obstacle to employment and growth is troublesome workers who they can’t get rid of. On the contrary, private sector bosses have created 625,000 new jobs since this Government came in.

When Brits are putting in three-day shifts, the last thing government should do is put the fear of God into them that they can be fired on the spot.

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29 Comments

  • Helen Tedcastle 21st May '12 - 4:40pm

    Thank God for Vince – the voice of reason and common sense!

  • I agree, ‘In spades’….A great pity that Vince has regularly spoken in favour of therecent changes in employment regulation.

  • @ Jason

    There’s a strong case for some changes, but not for ripping up the whole rulebook. That’s what Vince is saying and I agree with him. There has to be a middle way. Unfortunately, in the current climate, the sensible moderate approach will be slagged off, misconstrued or ignored as is always the case in our foul, destructive yah-booh political system.

  • RC21st May ’12 – 5:25pm.
    RC,
    I agree. However, I’m still trying to fathom why doubling the period of ‘unsecure’ employment will help. As Vince says, “I talk to big and small businesses every day and none of them tell me that their biggest obstacle to employment and growth is troublesome workers who they can’t get rid of.”

  • Richard Dean 21st May '12 - 6:21pm

    But for small business startups, when one new person may be 25% of the workforce, the fear of employing someone who deosn’t pull their weight after a probationary period is over is real. I’m afraid the fear includes things non-PC things like maternity leave. Assistance with these isuses could help a lot. How to interview. Financial assistance. Insurance? And what the regulations really are.

  • Helen Tedcastle 21st May '12 - 6:48pm

    @Richard Dean: ‘But for small business startups, when one new person may be 25% of the workforce, the fear of employing someone who deosn’t pull their weight after a probationary period is over is real. I’m afraid the fear includes things non-PC things like maternity leave. Assistance with these isuses could help a lot.’

    Agree with your final sentence in the quotation above.

    However, I am rather surprised that you cite ‘fear’ as the key understandable reason for deregulation of employment rights. Also citing maternity leave as another reason for ‘fear’ among small businesses and therefore part of the need for fast-track sackings, is quite shocking.

    Defending this type of reason for quickie sackings has no place in a party which believes in equality of the sexes and in employee empowerment.

  • Richard Dean 21st May '12 - 7:18pm

    @Helen. I think you may have a predilection for shocks. Where did I write that I support de-regulation of employment rights or fast-track sacking? What I have written is not only my own apprehension as a small business person, it has been told to me by other small business people. Our concerns need to be addressed, not scoffed at.

  • Andrew Tennant 21st May '12 - 9:34pm

    Geoffrey – they do take responsibility for who they hire. Which is why those they have doubts about don’t get a chance, they get a rejection letter.

  • Richard Dean21st May ’12 – 6:21pm……………….But for small business startups, when one new person may be 25% of the workforce, the fear of employing someone who deosn’t pull their weight after a probationary period is over is real………..

    Richard, The idea that a small business needs 12 months to discover, ” someone who deosn’t pull their weight” is unbelievable; that a small business needs 24 months is pure fantasy.

  • I totally agree with Vince on this. Having founded several small businesses over the years, I can understand small business concerns about potential liability for employee benefits that successive governments have imposed on SME businesses without regard to their ability to fund.

    However, if you are a small business and employ people and have engaged the services of an HR professional then you’re an accident waiting to happen. In many ways timely advice from an HR expert can be more important to the development of a successful business than an Accountant’s bookkeeping,

  • Richard Dean 21st May '12 - 10:39pm

    @Jason, My point is simply that one size doesn’t actually fit all in the real world.

    If you Google “stages of business development” or “stages of business growth” you’ll find many sites which identify several critical developmental stages, with the challenges and investment risks quite different in different stages. It would be nice if Vince and the LibDems could develop systems of thinking and assistance which could recognize these differences and the different consequent needs. Such recognition could also provide the business community with a hint that our leaders might have some idea of what they’re talking about.

    It seems feasible that rights, responsibilities, shares of risks, and shares of rewards for different people in a business might rightly be different ar different stages of growth.

  • Alex Sabine 22nd May '12 - 4:01am

    @ Geoffrey:
    “The idea that deregulating the employment laws can be a serious driver for growth is laughable. Not even under the Thatcher regime did we see anything like this!”

    Well, it was interesting that in his latest Newsnight appearance Lord Oakeshott – even as he opposed the Beecroft proposals – said he positively supported the government’s decision to increase the time period before unfair dismissal claims could be brought.

    Presumably he does so because he acknowledges that protection of existing employees can sometimes come at the price of lower total employment, and that vexatious claims have become a real problem for small firms in particular, and an impediment to their taking on new staff. If he believed there was no trade-off it is hard to see why he would support this reform.

    Sensible debate centres on the appropriate balance to be struck, which implies that there are costs (often hidden and unintended) as well as (intended and visible) benefits to employment regulation. In 2004, when there was less regulation in the UK than there is now, Vince Cable himself warned about the sheer amount and complexity of it. He wrote (in the Orange Book):

    “Within the past few years firms have acquired legal responsibility for minimum wages, maximum working hours, flexible working, paternity and maternity leave, avoidance of discrimination on grounds of sex, race and disability, immigration control in respect of overseas employees, increasingly stringent emission controls, welfare benefit administration, data protection, elaborate checks on money laundering, checking criminal records for sex offenders as well as more traditional company law, audit, (employee and public) insurance, planning, fire, consumer protection, anti-cartel and health and safety regulations.

    “Many of these measures, it must be said, are desirable, have long been fought for by reformers (including Liberal Democrats) and reflect a broad social consensus. The problem is that what often seem desirable measures in isolation are becoming, cumulatively, very onerous. There has been some regulatory traffic in the opposite direction – the ending of price, wage and exchange controls; weaker union recognition – but not much.

    “…Scepticism about the way regulation is being operated in the UK (and the EU) is reinforced by its sense of permanence and remorseless expansion… Each step in the creation of this web of regulatory complexity may have its own logic, but the cumulative effect can be very negative.”

    The Thatcher “regime” did indeed deregulate the labour market (not so much employment law as industrial relations law). One result was a huge and sustained decline in the days lost to strikes. Another was a more cooperative relationship between employers and their workforces, at least in the private sector, which proved its worth in the post-2008 recession when private sector workers agreed to take substantial pay cuts in some cases in order to keep companies afloat. As a result unemployment has not neared the levels seen in the 1980s and 1990s recessions despite a much sharper drop in GDP.

  • Alex Sabine 22nd May '12 - 4:04am

    Far from being “laughable”, the proposition that liberalising the labour market and reducing unit labour costs can be a serious driver for growth and employment is widely acknowledged. Indeed this was a key part of the ‘Lisbon agenda’ that the EU proclaimed some years ago but most member states have done little to implement.

    Germany did take some real steps in this area, which were mainly the handiwork of the Social Democrat led government of Gerhard Schroeder (in alliance with the Greens), who showed considerable courage in implementing reforms that his centre-right predecessors had ducked.

    He paid the price for that politically by losing to Angela Merkel in 2005, but the ‘Agenda 2010′ reforms laid many of the foundations for the dramatic improvement in Germany’s economic performance, which does not date (as some claim) from the launch of the euro in 1999 but only from 2003-04.

    It’s often forgotten now that in the late 1990s and early 2000s Germany was stuck in a long period of low growth and high unemployment. Its economy was widely viewed as sclerotic, even (with some exaggeration, given its strong industrial base) the ‘sick man of Europe’. Believe it or not, its labour costs were then the highest in Europe. Its income per head was actually below the EU average before enlargement, while unemployment had been stubbornly high for year after year (well above 4 million) and it had a poor record on job creation and new business formation.

    The 2003-05 Schroeder reforms were designed to slash Germany’s non-wage labour costs (social insurance payroll charges and regulatory costs) and shake up hire-and-fire rules so as to create a more level playing field for small firms and price workers, particularly the young and low-skilled, into employment. The agenda included:

    – Reducing job protection laws and collective bargaining
    – Reducing the period during which full unemployment benefit would be paid from three years to one year
    – Making it easier for companies to opt out of sector-wide agreements when circumstances required (eg by offering lower pay rates to keep a company afloat)
    – More flexibility for small companies to hire and fire
    – Reforming legal proceedings following dismissals by offering employees laid off a choice between a fixed amount of compensation and seeking redress in the courts, in which case the employee had to renounce all rights to financial compensation
    – Allowing new companies to take on workers on fixed-term (rather than permanent) contracts – making lay-offs easier – for up to four years instead of two
    – Tax cuts and simpler book-keeping requirements for the Mittelstand (SMEs)
    – Making it easier for skilled craftsmen to set up their own companies by abolishing the requirement to obtain a Meisterbrief (diploma/apprenticeship) first

    Accompanying these were reforms to the welfare system designed to reduce the high fiscal costs which manifested themselves in high taxes and employer payroll charges. These reforms included:

    – Cutting income tax rates throughout the scale (from 19.9% to 15% at the low end and from 48.5% to 42% at the top end), funded by cutting federal subsidies
    – Requiring private insurance for long-term sickness benefit, previously paid by public health-insurance companies
    – Introducing co-payment for doctor visits and prescriptions
    – Increasing the state pension age from 65 to 67, reducing the generosity of pension benefits, and measures to boost private retirement saving

    Assessing the initial effects of these reforms in 2005, The Economist noted: “Although Agenda 2010 came late and did not go far enough, it was more than a respectable start. It tried, for the first time, to enact labour-market reforms that merited the label. Tax cuts were part of the deal too. Less visibly, the wage-bargaining system was overhauled from the bottom up: employers’ associations and trade unions managed to agree to low pay increases and more flexible wage agreements, allowing for longer working hours. Last year, unit labour costs fell by 1.1% in nominal terms.

    “As The Economist noted two weeks ago, this drop has helped to make German companies far more competitive. The country was the world’s biggest exporter in 2004. Profits have reached new highs. Industrial production is growing at its fastest rate in a decade.”

    Fast forward to last month, when it said of Germany: “Despite being at the heart of sclerotic Europe, its GDP per head has risen by more than any other G7 country’s over the past decade. Unemployment in the troubled euro zone is at its highest since the single currency’s birth; in Germany it is at a record low. In most rich countries manufacturing exports have been hammered by foreign competition; in Germany they remain powerful drivers of growth. No wonder hard-pressed political leaders in France, Spain, Italy and Britain are talking wistfully of becoming more like Germany.”

    I’m not saying that we should copy everything Germany does, or that the German economy is an object lesson. Its demographic trends are worse than ours, and its welfare system will need further reform to cope with the results. And Germany’s towering export surpluses are at risk because the corresponding deficits incurred by its trading partners are unsustainable. It is unlikely to be able to rely on manufacturing exports forever and will need to find additional sources of growth based on domestic demand and growth in the service sector.

    But, clearly, a lot has gone right with the German economy over the past eight years or so, and much of this has been a labour market phenomenon. Moreover, unless these reforms are matched in other European countries whose labour markets remain much less flexible, there is no sustainable future even for a smaller eurozone, because the imbalances between Germany’s current account surpluses and deficits in France, Italy, Spain etc will inexorably widen. That is why the EU, the IMF, the OECD and others have all recognised that these competitiveness problems are structural and require supply-side reform, especially to labour markets, to go hand-in-hand with fiscal repair work if the currency union is to have any hope of working tolerably well in future. Mario Monti has begun making these changes in Italy, but I doubt Francois Hollande will have the stomach for them.

    The catch is that structural reforms like these often take several years to bear fruit. They are unlikely to boost growth significantly in the first year or two. They will not fill the void created by a lack of demand, but they can improve the economy’s potential to grow and to generate jobs when demand returns. In the medium and long term this makes a much bigger difference to living standards and employment prospects than short-term tinkering with the fiscal and monetary controls; but it does not provide succour to those seeking rapid salvation.

  • Paul Reynolds 22nd May '12 - 6:47am

    Alex Sabine does provide some very helpful info on the German reforms which Angela Merkek claims have contributed to a relatively healthy German economy.

    But it is inadvisable to view these refirms out of context. Much of the reforms were about addressing unbalanced rights on both sides. Some employer rights were disproportionate to the disbenefits to employees and vice versa. They were aimed at specific legislative details that were disbeneficial to all, (unemployed people enjoy zero employment rights in pratice). Part of the context is the range of employee rights include employee councils which are much more favourable to staff than in the UK. On the other hand the German system in practice does not hold to the concept of demarcation – as BMW Mini workers will attest to.

    Its a hard balance to strike to benefit growth and employee rights at work. But for right wing Tories whose experience of industry is often as passive investor, industry is a battle bewteen lazy workers and impatient bosses, as is the teverse for far-left trade union officials. Thank goodness Lib Dems dont see business as such a black & white ideological battle.

    So Vince is right to resist the right wing Tory understanding of employer – employee relationships and the need for reform. The crazy thing is that the hiring and firing process in the UK has become a game which both ‘sides’ play. Firms can use the rules to fire or force the resignation of staff by using and bending the rules cleverly. Some employees similarly. This game benefits no-one and has contributed to the bureacratisation of UK employment – and is especially bad in not for profit or governmental organisations.

    Neither are reforms to make it harder to go to Tribunals with unfair dismissak claims. It is already difficult and costly to bring forward Tribunal cases, and very complex to bring forward cases without legal help.

    It will be such a missed opportunity if employment reforms decend into Tory employee bashing or Labour & union boss bashing.

  • Paul Reynolds is right in that the German reforms, listed by Alex Sabine, need to be viewed in context, namely where Germany was and where it is now and for these actions to be compared to the UK; I suspect that you may discover that the current UK labour market as a whole is still more liberal than the reformed German labour market.

  • Regulations which are vital to protect workers in multi-nationals may not be suitable for small businesses.

    Employees in small businesses are already at significant disadvantage to their counterparts in big business. They carry increased risk of unemployment, work longer hours for less pay and often, unlike their employer, have little prospect of profiting from success. The fact is entrepreneurs are the risk takers, that’s why we put up with them getting the big pay offs if things work out. Selecting good employees is one of the most important skills for a business owner. If they can’t get that right, especially with a whole TWO YEARS to decide, they deserve to go under. The sooner the better. Employees are not lab rats to be experimented with. Labour reform should focus on easing the burden of small business employees and transferring the risk to those set to benefit. Absolutely not the other way around.

  • Richard Boyd 22nd May '12 - 1:45pm

    Having only served on Employment Tribunals for 12 years, I can be forgiven I hope, if I say

    “Thank You Vince!”

    Richard Boyd

  • The argument over whether its better to have strong employer rights legislation, or to have a system of highly flexible, mobile labour, is really an argument for better times.

    Yes, its entirely possible that growth could be promoted with even looser employee rights legislation, bearing in mind that we in Britain already have the most liberal in Europe and that any acceptable solution would need a very robust process to deal with unfair dismissal. But there is the question of whether enough growth could be generated to justify the side-effects.

    And of course in the present situation, the knock-on effects would destroy all that potential new growth and more by removing what little consumer confidence remains. You do not boost consumer confidence, stimulate spending and beat a recession by telling everybody that their job is now on the line. In fact its hard to think of a more effective way to depress everyone.

  • Radicalibral 23rd May '12 - 12:52am

    It is very persuasive that the Beecroft Report focuses on Small Businesses but lets be clear the reforms would apply to Large as well as Small Firms so at its basic level these reforms are a sledgehammer to crack a nut. On twitter Euroworkers has written extensively on the need to balance the work and family life balance. Whilst it recognises the importance Small Businesses play in our economy and the difficulties they face it recognises we cannot simply forget that employees also have families, they need to earn incomes because the Govt won’t let people be unemployed, and they need breaks from work so they do not become a burden on the NHS. Like blanket Welfare Reforms such as cutting Unemployment Benefit without looking at the individual reasons for Unemployment which stops treating people as Human Beings, I am sure the Tories should not be supporting blanket Employment Reforms which are a detriment to Families which they also support with equal vigour.
    Don’t get me wrong as a Trade Union Member I actually support reform of Trade Unions. I am very concerned that Super Trade Unions have become “less” responsive to individual Union Members issues sacrificing these at the expense of the “collective” good. These Unions are perceived as being more Left Wing but perhaps doing less for the individual TU Member than the more militant Unions of the 1970’s did. What we need is more TU’s working in partnership with Employers but representing Individual Unions Members not forgetting them as the price for “not upsetting” Employers and with the same recognition of their ability to be a source of Social Good as in Germany.
    Lets be clear about the Beecroft Reforms. There will be no need for TU’s at all if you cut off their legs, no effective Tribunals given the prohibitive cost of taking “genuine” cases to them if payments have to be made up front, no need for ACAS certainly regarding their reduced role for dispute resolution, and forget about bringing up the future generations of this country in families.
    The Beecroft Reforms want to take us back wards to before the 1970’s when Europe had very little influnece on Labour Reforms and to a time when we had only just introduced such reforms in this country as it taken that long to get the basic of reforms introduced into British Society. Once again it has a negative attitude towards Employer/Employee Relations. In Germany a central tenet of their society is that German People “want” to work for the best German Companies. Minimum Wage Jobs, and the minimum wage economy is not the incentive that British People want to work for good British Companies. We should be encouraging Small Companies to want to share the benefits of their success not in wage increases but (and this is a radical change for the mindset of Small Employers) yes in the profits of the business. Such an incentive may “encourage” people to want to work harder for their own as well as the businesses benefit, rather than use the highly subjective Performance Management culture to identify what is a hard working employee, and who is clearly a Lazy employee.
    If we do not incentivise employees to want work harder, then people will continue to look to ways for earning money lucratively other than the world of work. I would also be interested(though I am not normally a fan) of exactly what the Tax Payers Alliance think of the Beecroft Reforms relying on the state picking up a bigger financial burden for some of these reforms?

  • Alex Sabine 23rd May '12 - 4:04am

    Paul and Roland: I cited the German example to counter Geoffrey’s claim that it was “laughable” that labour market deregulation could be a valid means of boosting growth and employment. The Germans would beg to differ.

    I agree that reforms in other countries should be viewed in context. It’s relevant to look at (a) the starting point prior to reform and (b) the cultural and institutional context. However that doesn’t mean the specific reforms can be airily dismissed as irrelevant to us.

    It’s true that in some respects German workers still have stronger employment protection than our own. But over the past decade (a) the tax and regulatory burden has been lightened rather than made heavier, the opposite direction of travel to the UK; (b) Germany’s unit labour costs have grown remarkably little while its non-wage costs have gone down; neither of these is true of the UK – real wages grew strongly during the boom years, and National Insurance contributions and the regulatory burden were both substantially increased; and (c) Germany has other long-standing comparative advantages which are sadly not exhibited by the UK economy; meanwhile our advantages in labour market flexibility and the climate for small businesses have been steadily eroded.

    If you look at the specific ‘Agenda 2010′ reforms which I detailed in my previous post, they strike me as exactly the sort of measures that some people commenting here seem to think are beyond the pale. In fact, some of the welfare measures went further than those adopted in the UK at the time (co-payment in health, time-limiting full unemployment benefit, raising the pension age to 67 before a British government announced plans to do so).

    I also thought it was worth noting that a Social Democrat Chancellor proved a bolder labour market reformer than his Christian Democrat predecessors. (And he was supported in these endeavours by his coalition partners the Greens! Can you imagine Caroline Lucas backing the measures I listed above?!)

    But that isn’t to say there weren’t strong objections: there were – all the usual ones that we also hear in this country whenever any deregulation in any area is suggested – especially from within the SPD and from the unions. Fortunately the government faced down its critics and pushed through a useful tranche of reforms, to the benefit of the German economy and (especially) the two million or so Germans who were then unemployed and who found jobs over the ensuing decade.

    I also cited the labour market deregulation here in the UK in the 1980s, which mainly took the form of bringing trade unions within the scope of the civil law and curbing their previously extremely broad immunities, which were being routinely abused and the most egregious of which (the closed shop for example) were an affront in a free society.

    One consequence of the reforms was a dramatic decline in industrial strife. In the 1970s an average of 13 million working days per year were lost to strikes; in the 1980s this dropped to 7 million (despite the miners’ strike and Wapping) and – despite claims that this was simply because they were cowed by rising unemployment – it fell further during the 1990s and 2000s to a few hundred thousand.

    The recent upsurge in strikes has been largely a public sector phenomenon. Indeed, it is notable that the deal that led to GM choosing its Vauxhall factory in Ellesmere Port to become the lead plant in Europe for the manufacture of the new Astra (seeing off competition from Germany) was based on changes to working practices which included accepting the closure of the company’s defined-benefit pension scheme for new workers, an increase in the working week from 38 to 40 hours, and a shorter plant shutdown in the summer. As a result the future of the plant has been assured, 700 new workers will be taken on almost immediately and more of the component supply chain will be shifted to Britain, creating an estimated 4,000 more jobs here indirectly.

    As Dominic Lawson noted on Sunday, the union that negotiated this trailblazing deal (Unite) is “the same one that threatens industrial action in defence of the proposition that the state must continue to pay its employees substantially more than their equivalents in the private sector earn – as recompense for the burdens of fewer hours, longer holidays and near-absolute job security.” The key difference being that in relation to Ellesmere Port the union negotiators recognised the company was subject to global competitive pressures; while in the public sector, monopoly provision and guaranteed income insulates them from the need to engage with financial realities.

    As I recall the Alliance largely backed the 1980s trade union reforms, and even the Tory-bashing Lord Oakeshott acknowledges they were overwhelmingly beneficial when he said on Newsnight the other night: “We have a totally different labour market than we did 20 or 30 years ago, and I pay tribute actually to Mrs Thatcher for cracking the strength of the unions.”

  • Alex Sabine 23rd May '12 - 4:14am

    The problem now is not the power of the unions (at least not in the private sector where they pay heed to competitive realities) but the sheer volume of new employment regulations – and their associated compliance costs – that have been added to the statute book over the past decade. As Vince Cable warned (in the quote I posted above), this was already becoming excessive and “very onerous” in 2004. If that was true then, it is surely an even more valid concern today, given the further accretion of employment laws in the intervening eight years.

    And despite the coalition’s stated intent to stem the one-way regulatory traffic through its ‘one in, one out’ rule, by and large this has amounted to scrapping or modifying some fairly peripheral or even obsolete laws while queuing up several much costlier new ones like the parental leave and workplace pension changes, not to mention those emanating from the EU.

    These two changes may well be desirable in themselves, but it is not difficult to see that they will pose genuine headaches for small companies in particular. As always, their larger competitors will be better able to absorb the costs; indeed, the weight of employment regulation is one of the factors by which the state systematically reinforces the advantages of large versus small companies and of incumbents versus new entrants, which is not exactly an optimal outcome from a liberal perspective.

    Another example of employment law having unintended consequences is the operation of the TUPE rules. These were originally designed to protect workers if their company was taken over by ensuring the preservation of their existing terms and conditions.

    In 2006 TUPE was extended to cover third-party contractors. Thus, if company A contracts out a service to company B, and decides after a period of time that it is not satisfied with the service being provided and wants to engage a new contractor when the contract runs out, that new contractor has to take on all the staff from company B who were employed on that project on their existing terms and conditions – even if the reason for the change of contractor was dissatisfaction with the work performed by company B’s staff and even if company B’s staff are paid more than its own. The same applies if company A decides to take the service in-house. This often makes it difficult, if not impossible, for incoming employers to harmonise the terms and conditions of its staff after a TUPE transfer, which is not conducive to good staff relations.

    Even if they wish to do so, employees facing a potential transfer do not have the right to waive TUPE obligations, for example to agree to changes to pay or conditions as a means of ensuring the viability of the project.

    I had personal experience of this when a company I worked for, which supplied content to a major media organisation, was unable to secure a contract extension after a seven-year association because the media company had a reduced budget to spend on the project. The media company wanted to take the service back in-house but could not afford to take on all staff on their existing terms, which included significant pension liabilities. It was advised by lawyers that TUPE prevented it from negotiating a new deal with me and my team that would have preserved the project and most of the jobs, so instead it reluctantly pulled the plug on the project altogether. So the company we worked for had lost the contract, and the media company was prohibited from taking us on on terms that would have been mutually satisfactory. Therefore we were all made redundant. The idea that TUPE had been a great protector of our rights rang pretty hollow I can tell you!

    I should emphasise that what I’m arguing for is not a wholesale dismantling of regulation but a more proportionate approach: one which recognises costs as well as benefits, not just to existing well-protected employees but to those who are excluded from the jobs market; which does not judge regulation simply by the worthiness of its intentions, but by all of its likely effects; which recognises that small firms disproportionately bear the burden of regulation; and which makes a serious effort to to minimise compliance costs rather than entangling both private companies and the public sector in red tape, diverting large amounts of their time and resources from more productive uses.

    By these criteria I think there is considerable scope for improvement in the UK. Clearly, more radical deregulation is required in countries like France, Spain, Italy and Greece if they are to create jobs and survive within the euro; whereas other European countries like Denmark, the Netherlands and (since the Schroeder reforms) Germany have struck a better balance.

    Thanks to the 1980s reforms and cultural changes, our labour market is generally flexible and reasonably efficient, and most of the key improvements were preserved by the last Labour government. However, having been on both sides of the fence, I do accept the case made by almost all bodies representing UK companies that the cumulative burden of domestic and EU regulation in both the employment and other fields has become (in Vince Cable’s words from 2004) “very onerous” and needs substantial pruning. At the very least the government should stop speaking with forked tongue and piling new regulations on SMEs.

  • Radicalibral 23rd May '12 - 10:45am

    @Alex Just a small point that must be made clear but is often easily overlooked when doing the Tax Comparison between European Countries. It cannot be underestimated how much of public expenditure is swallowed up by the ongoing costs of the NHS. Also we have L/A Housing Provision which other European Countries do not have and although its cost to the taxpayer has been ring fenced in terms of its costs it still receives money from the Govt.
    These are just 2 examples when trying to compare like for like but for which a reduction in the expenditure for such items would not easily be politically expedient and therefore change in these items is avoided.

  • Radicalibral 23rd May '12 - 11:37am

    @Alex Sorry but I must come back at you regarding the corrosive effects indirect legislation has had on the TU movement. As I mentioned in my earlier contribution I do not exempt the TU movement from blame from contributing to its own downfall.In particular with the amalgamation of TU’s supposedly to secure their long term survival but equally as a consequence being out of touch and not supporting the shop floor on non industrial action issues. Reform from within the TU movement has got to happen or I can see the emergence of a breakaway TU made up of disgruntled Trade Unionists, and those that want to join such a Union.
    However let us not underestimate the difficulties such a TU would have in getting started today, let alone setting up a branch of an existing Union in the workplace. Let me declare I used to be a Liberal Democrat, and was a NALGO Shop Steward (thrown into the job because I was one of only 4 people who were members, and who did not want to join NUPE). What was the first thing that happened I got thrown straight into an Industrial Dispute over pay. Fortunately I had the backup of a Part Time Official to help guide me. However in standing up for the members of my Union (all were female) I took it upon myself to ensure that their voice was not drowned out by the sexist reactions of my other Union Colleagues and resisted justifying intimidation of my colleagues over what they considered was a trivial issue Car Parking. When I moved from that employment to work for an RSL there was no encouragement and no widespread support to join MSF (the forerunner of UNITE). Nonetheless when I rejoined the RSL Sector after a gap,and nothing had changed since my MSF days I still decided to join UNITE.
    I wanted to set up a branch of the Union at my workplace. But changes in employment law affecting employees since 1988 mean the obstacles to this happening are huge. I tried to work with my union so I could help set the branch up in secret. This is what you have to do to stop employers from thwarting your intentions until you have enough people signed up to get Union recognition. I received zero help form my Union Official who unlike previously 30 yrs ago is no longer based in the workplace that I work in. However I am determined that employees should have more a say in the destiny of the organisation they work for in a “constructive ” way, and that involvement is not limited to the largely employer controlled Workplace Forum.
    You are fundamentally wrong about the strength of the Unions in the Public Sector. In some respects they are no better off than the Private Sector regarding a common sense approach to safeguarding the jobs of their members. Nobody wants to be Unemployed in today’s Labour Market with the chances of finding alternative employment much worse than the 1980’s. However in some respects Public Sector Unions are worse off than their Pivate Sector Colleagues. So called militancy has also largely surrounded the Pensions issue. Whatever you think of Public sector pensions provision at least they are doing something their private sector colleagues are not doing at the moment making provision with a 2nd pension for their old age. If Private sector employees do not do something about this then what a drain they could be on the public purse when they come to retire. I can hear the clarion calls of the Tax Payers Alliance now.
    However the single biggest changes to so called union power in the public sector has been Compulsory Competitive Tendering, and followed by TUPE. Public sector workers having been TUPE’d in many case no longer find themselves working in the public sector on the back of a TUPE. yet not satisfied with that Beecroft wants to reduce the rights of employees still further by the changes he wants to make to TUPE. Again the proposals he wants to make on this issue alone if put under Independent Scrutiny are “factually wrong”. This is a serious problem which permeates the whole of his report, and goes to the heart of its credibility.
    That is why whatever you think of the merits ortherwise of the Beecroft Report it contains so many factual inaccuracies, and poses solutions for the wrong problems. Apart from the Small Business bandwagon which I have to say it is down to Small Businesses to get their voice heard through their own representative body, and not jump on the coat tails of the CBI who I am sceptical as to how representative of Small Businesses they are, the Beecroft report does predominantly help the CBI and it membership. Do they need any more help, they had a good run for their money when Digby Jones was leading them.
    I am sure that whatever the merits or otherwise Lib Dems feel may be included in the Beecroft Report I am sure they would not want to be associated with a report that is more accurate in its findings. Oh by the way if you think this is just another Union Official spouting off who I should point out is not a Socialist, I suggest you ask an Independent organisation such as say ACAS to review the accuracy of the information contained in this report. You could phone their helpline to ask for the research you are looking for.

  • Alex Sabine 23rd May '12 - 2:36pm

    @ Radicalibral: The measures of tax and public spending used by international bodies like the IMF, the OECD and the European Commission – General Government Expenditure and General Government Revenue – are as internationally comparable as these stats can be. GGE and GGR comprise expenditure and revenue by all levels of government, so whether services are funded by central government grants or by locally raised revenue is immaterial to these figures.

    I was mainly arguing about regulation rather than tax-and-spend, but it also happens to be the case that the British state (all levels) now spends more than the German government. This was true even before the crisis; in 2007 GGE was 44.1% of GDP in the UK and 43.5% in Germany. By 2010 this gap had widened to 4.3 percentage points (51% of GDP in the UK vs 46.7% in Germany).

    There was no union recognition or collective bargaining in the last company I worked for (before setting up on my own), but the workplace environment was cooperative and congenial and there was a good relationship between management and the employees. This is now commonplace in the private sector. Union recognition would have made no positive difference to the TUPE issue that I explained above, because the problem is that in such cases the law prevents employees facing a transfer from agreeing mutually satisfactory changes to their terms and conditions with their prospective new employer. If this makes the project unviable then the likely outcome is redundancy.

    I don’t think it’s controversial that unions are more prominent and powerful in the public sector. ONS figures show that around 4 million of the approximately 6 million public sector employees are union members versus 2.5 million of the 23 million or so private sector employees. Collective agreements on pay cover 68% of public sector employees compared to 17% of private sector employees.

    As regards the disparity in remuneration between the public and private sector, the scale of it varies depending on various factors (eg whether you look at pay in isolation, or pay plus pensions and benefits; whether and how you control for levels of skills and qualifications). But, as the IFS has repeatedly found, there is a clear public sector premium even taking these into account. On pay alone, there is an average public sector premium of about 8% after taking into account age, region, education and qualifications achieved, although this is expected to narrow to an insignificant level after the pay freezes and 1% cap over the next few years (assuming that private sector earnings grow more quickly).

    The IFS judges that, even after the government’s reforms, “members of public sector pensions will continue to accrue pensions that, on average, are far more generous than those enjoyed by their counterparts in the private sector”. Therefore there will still be a substantial premium in the overall remuneration package available to public sector workers, even after you make a whole range of adjustments to the raw data on pay.

    http://www.ifs.org.uk/budgets/gb2012/12chap5.pdf

    You are right that it’s important to improve pension provision for private sector employees. The Labour government did not exactly help an already difficult situation with its 1997 pensions tax raid, although this was only one of several factors leading to the demise of final-salary schemes.

    However the reason private sector employees are not “doing something” as you put it – ie striking en masse in defence of final-salary schemes – is that they recognise that it would bankrupt their companies. Unison negotiators even recognised this in the example of saving the Vauxhall plant that I cited, agreeing to the closure of the company’s defined-benefit scheme to new workers. They have not shown similar realism when it comes to putting public sector pension provision on a sustainable and fair basis, because they expect the taxpayer to pick up the bill and they are insulated from competitive pressures that would make this stance untenable in the private sector.

    On the Beecroft report, since it hasn’t yet been published I haven’t read it and can’t check the accuracy of the underlying evidence. Many of the (leaked) recommendations seem to be sensible and the government will implement these, while a handful are more controversial. I think there needs to be an open, rational debate on this whole subject rather than the hysterical over-reaction and name-calling which it is threatening to descend into.

  • Alex Sabine
    Any comparison of public/private pay must of necessity rely on rather wooly assumptions. (What for instance is the private sector equivalent of a soldier?). I don’t share your confidence that the IFS can control for all the relevant variables. However even if we accept the IFS analysis it is clear that the premium, so-called, is almost all at the lower ends of the pay scale. Given the taxpayer subsidises the lowest paid with in-work benefits the “public sector premium” simply represents the success of a largely non-unionised private sector in off-loading part of it’s labour costs onto the government.

  • Alex Sabine 23rd May '12 - 4:31pm

    AndrewR: Of course it isn’t possible to be 100% precise at the aggregate level as a result of the adjustments made to control for all the relevant variables – but the IFS estimates are very similar to those produced by the ONS and other bodies which have tried to examine this in a methodologically rigorous way.

    You’re obviously right that the distributional pattern of earnings in the two sectors in different. The private sector has a greater proportion of workers at the bottom end of the national wage/salary distribution and also at the very top (highly paid bankers and lawyers for example). The public sector has many at significantly above-average wages but few at minimum wage level or at the very top.

    The government’s chosen form of pay restraint is actually increasing the gap between the two sectors at the low end of the wage distribution, since the lowest-paid 28% of public sector workers are receiving a pay rise of £250 per year in 2011-12 and 2012-13 while the other 72% are having their pay frozen. Likewise its pension reforms are widening the gap in the treatment of the low-paid between the two sectors, as the IFS noted:

    “Since lower earners in the private sector are particularly unlikely to have access to a good-quality employer-sponsored pension, and especially a defined benefit pension, the latest reform will increase the difference between public and private sector labour forces.”

    These improvements to the relative position of lower-paid public sector workers may well be justifiable, indeed laudable. But one effect is that they will increase the disparity you point to between public and private sectors, for reasons that can’t be explained by the lack of collective bargaining in the private sector or the level of in-work benefits.

    In any case, whatever the exact picture on pay, the difference in pension provision is the really striking contrast. As the IFS argues: “A joined-up approach to policymaking requires that the generosity of public service pensions – and the impact of any reforms on different groups – should be considered alongside public sector pay.

    “What matters is the extent to which the overall remuneration package offered by public sector employers is well designed to attract, motivate and retain sufficient numbers of workers of the desired quality in a way that provides good value to the taxpayer.

    “In general, this is likely to mean that public sector workers should have an overall package – in terms of financial and non-financial benefits – that is similar to that available for similar roles in the private sector.”

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