Letter to the Committee from the Institute
of Directors (ES 03)
Thank you for giving the Institute of Directors
(IoD) the opportunity to contribute to your inquiry into the "impact
of economic slowdown on the Government's employment strategy and
to assess the employment assistance available to those facing
employment". The IoD is a non party-political organisation
with some 68,000 members world-wide, 55,000 in the UK, whose aim
is to help directors to fulfil their leadership responsibilities
in creating wealth for the benefit of business and society as
1. May I say from the outset that we have not
undertaken any research on the Job Transition Service or Jobcentre
Plus and the last (and only) survey on the New Deal was undertaken
in 1999. The results of this survey were written up in a research
paper entitled "The New Deal one year on"
and I enclose a copy for the Committee's interest. The main findings
included, firstly, that our members were more willing to take
on 18-24 year-olds than the (older) long-term unemployed; secondly,
there was reluctance to take on staff who were not "work
ready", thirdly, there was some scepticism about whether
the New Deal would have positive implications for their companies
or the economy at large, and, finally, the impact on our membership
had been quite limited. Because of the final finding (and other
pressures on policy unit staff), and some scepticism about the
New Deal's efficacy, we have not repeated the exercise. This should
not be read as IoD indifference to people who lack employability
skillsnot at all. And we will continue to press hard for
improvement in the nation's basic skills. But we have concentrated
our limited resources in this area on supporting the DfES's initiatives
within schools. Whilst we welcome the improvements in primary
school standards, there is clearly much more to be doneespecially
at secondary school level.
2. Our second point is that, whilst it is true
that the economy slowed down last year and there was a real risk
of global recession, some "green shoots" now appear
to be emerging. The US economy staged a surprising "recovery"
in the fourth quarter of last year (with annualised GDP growth
of more than 1½ per cent) and, even though we believe GDP
growth will be a relatively modest 1½ to 2 per cent this
year this will undoubtedly help the world economy in general and
the UK's trade in particular. (The US is the UK's largest single
trading partner by a sizeable margin.) The Eurozone economies
are also looking more optimisticalthough we have major
concerns about the economic health and dynamism of Germany. Germany
is by far the biggest of the Eurozone economies, accounting for
nearly 2/3 of total GDP, but it grew by
less than 1 per cent last year and is not expected to do much
better this year. It is an economy weighed down by regulation,
the costs of reunification and the straightjacket of the euro.
Germany's sluggishness will inevitably act as a restraint on global
recovery. Finally, Japan (the "third pillar" of the
world economy) still seems to be mired in recession with a banking
system that is effectively bankrupt.
3. Turning to the British economy, we are fairly
confident that growth will pick up this year (after last year's
poor fourth quarter figure) and should achieve growth of around
2 per cent (after just under 2¼ per cent in 2001). Under
these circumstances we do not expect a deteriorating labour market.
Indeed unemployment actually fell back in January and February
(after picking up modestly in 2001Q1) and the claimant count unemployment
rate was just over 3 per cent in February (just over 5 per cent
on the ILO definition). If, therefore, our economic expectations
are fulfilled then the Government should not be facing a major
increase in unemployment in the short-term.
4. But this isn't to say "that all in the
garden is lovely". We have expressed our concerns many times
over about the increasing labour market regulations (whether from
Brussels or Whitehall) and we have written copiously on the subject.
We shall spare the Committee the full panoply of our writings
on this issue, but we do include two of our papers that are relevant
to the subject. The first paper is "The red tape menace"
which is the write-up of a very recent IoD member survey. 75 per
cent of the respondents to the survey said that the labour market
regulatory burden was "much heavier" since 1997 and
18% said that the burden was "heavier". (It was also
clear that many members believed that the build-up of employment
red tape was impeding growthand hence employment creation.)
The second, "The work-life balance`and all thatthe
re-regulation of the labour market",
includes economic analysis which shows that there is a strong
correlation between lightness of employment regulation and job
creation (chapter 5). The heavily regulated labour markets and
badly functioning labour markets in, for example, Germany, France
and Italy, should act as a warning for zealous labour market "fairness"
regulators. Unemployment in these countries is around 9-10 per
cent. We would also like to add that changes to the regulatory
regime impact with a lag. The UK's experience of the 1980s is
convincing evidence of this. In conclusion, therefore, we warn
that the unquestionably heavier regulatory burden imposed on business
since 1997 may not seem to be having a significantly negative
impact on business activity and job creation nowbut we
fear that it will.
5. Our message to Government is this. If full
employment is your goal, you need to do three things. Firstly,
ensure that the vast majority of children leave school with adequate
basic literacy and numeracy skills; secondly, minimise the employment
regulations burden and, thirdly, maintain economic stability so
businesses will have the confidence to invest and grow. This is
not rocket science.
Head of the Policy Unit
11 April 2002
1 Wilson, Richard: "The New Deal one year on"
(IoD, 1999). Back
Baron, Richard: "The red tape menace" (IoD, 2002). Back
Lea, Ruth: "The Work-life balance . . . and all that. The
re-regulation of the labour market" (IoD, 2001). Back