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The UK government’s impact assessment of its workers’ rights reforms is “not fit for purpose” because it does not explore the effect of higher costs for employers on wages, jobs and economic activity, a watchdog has warned.
Analysis published alongside the government’s employment rights bill last month concluded that the legislation — a central plank of Labour’s promise to boost living standards — would cost businesses up to £5bn a year, with the effects concentrated in low-wage sectors.
The government argues that workers would benefit to a similar extent, making the overall economic impact minimal, while giving individuals more security and control of their working lives.
But the Regulatory Policy Committee, an independent watchdog that scrutinises the evidence base for policy decisions, has said the government had not given enough evidence to justify eight of the measures contained in the wide-ranging bill, including some of the most controversial changes.
This meant the government’s assessment of the bill’s overall impact was inadequate, according to an assessment by the watchdog.
The RPC gave a red rating — meaning the analysis was not fit for purpose — to costings for the introduction of day-one protection against unfair dismissal, the repeal of anti-strike laws, a new right to guaranteed hours for workers on insecure contracts, and curbs on “fire and rehire” practices.
These measures have caused concern among business groups, which say the triple whammy of the bill, the Budget increase in payroll taxes, and a rising minimum wage will hit hiring, suppress wages, cramp business investment and fuel inflation.
“Given the number and reach of the measures, it would be proportionate to undertake labour market and broader macroeconomic analysis, to understand the overall impact on employment, wages and output, and particular, the pass-through of employer costs to employees,” the RPC said.
Tina McKenzie, policy chair of the Federation of Small Businesses, said the findings should be “a sharp wake-up call” for ministers who needed to “think again about the dangers of a cavalier approach to jobs and work”.
She added: “The country cannot afford to pile further cost and risk on to small employers based on such an overwhelmingly weak evidence base.”
The RPC castigated the government for failing to demonstrate the scale of the problems it aimed to address, and for not comparing its proposals with alternatives, beyond a “do nothing” option.
Its assessment, published last week, also noted that costings of some individual measures, such as the restrictions on fire and rehire, had not been included in the estimate of the bill’s impact because they were uncertain, even though they were potentially expensive.
“Businesses up and down the country knew this already,” Andrew Griffith, shadow business secretary, said of the RPC’s findings. Equating the bill with the Budget rise in employers’ national insurance contributions, he called it “the second wave of an attack on job creators”.
A government spokesperson said the “initial, indicative” assessments of the primary legislation represented “the best estimate of likely impact at this stage”, but that “we intend to refine our analysis and conduct further assessment as the bill progresses”.
Many of the details of the reforms’ implementation are not yet decided and will be set out in regulation at a later stage.
Consultations will close next week on proposals to make it easier for unions to win collective bargaining rights; determine rates of statutory sick pay for low earners; and ensure that the new ban on “exploitative” zero-hour contracts applies to agency workers.
The British Chambers of Commerce will use a hearing of the Employment Rights Bill committee on Tuesday to highlight companies’ “serious concerns” about the legislation, as well as the speed of consultation.
Shevaun Haviland, BCC director-general, said business welcomed the bill’s aim to provide employees with “workplaces free from discrimination” but warned it was being “rushed through at breakneck speed”.
“The Budget has already left many firms feeling bruised, and if this legislation is enacted as it stands, it could hamper growth,” she added. “Firms are particularly concerned about the lack of detailed consultation on the trade union changes, especially when the government’s own assessment was so vague about the impact.”