APPENDIX 2
Memorandum by the British Chambers of
Commerce
The British Chambers of Commerce represents,
through a quality assured national network of Accredited Chambers
of Commerce, more than 135,000 UK businesses in all sectors of
the economy, and of all sizes. Accredited Chambers seek to represent
the interests and support the competitiveness and growth of all
businesses in their communities and regions.
EXECUTIVE SUMMARY
The BCC's response to the Committee includes
employment regulatory costs, working time regulations, national
minimum wage, work life balance, temporary agency workers, discrimination
and the availability of a skilled workforce. The key points are:
— The BCC Burdens Barometer found that
the total cost of Regulation since 1998 to be £30 billion
of which £12.68 billion is from employment regulations. The
total cost of employment regulations in the last year has increased
by 21%. Our research has shown that for all 165 Regulatory Impact
Assessments (RIAs) published in 2002-03 the costs of regulations
were rising whilst the benefits were declining. This trend results
from the fact that Ministers continue to sign RIAs certifying
that the "benefits justify the costs" when, in the majority
of cases, no evidence is presented that this is the case. This
practice is in direct contravention of the Cabinet Office guidelines
on the preparation of RIAs.
— The Working Time Regulations are
the largest cost to business at £11.1 billion since being
introduced in 1999. The opt-out from the maximum 48 hour working
week is valued by employers and employees. Losing the opt-out
would add further regulatory costs to business and would also
undermine the flexibility of the labour market. The BCC strongly
support retaining the opt-out.
— The BCC supports in principle the
minimum wage, which was introduced through the National Minimum
Wage (NMW) Regulations 1999. However, the NMW presents two potential
dangers. Firstly, if the NMW continues to rise at the rate it
has over the last five years, (this year by just under 8%) it
could lead to businesses having to cut costs. The BCC therefore
recommends that the NMW be capped in line with inflation. Secondly,
the new NMW for 16-17 year olds could harm the flow of skilled
workers into the economy. The BCC therefore recommends that the
exclusions from workbased learning should remain but also that
the rate of £3 should also be capped to prevent adding further
incentives for young people to leave education or training.
— The light-touch approach to flexible
working has been a success over the last year. Flexible working
benefits businesses by encouraging higher levels of productivity
and increasing staff retention. The success of the light touch
approach negates the need for further regulations. The Government
must honour the commitment it made not to review the Regulations
until 2006.
— The UK has more temporary workers
than any other EU state, over 700,000. Therefore full parity of
benefits and conditions between temporary and permanent workers
would raise the cost of hiring temporary staff, making them a
much less attractive prospect for employers, and leading to fewer
employment opportunities. The BCC therefore recommends that the
current proposal for a 6 week exclusion period within the Temporary
Agency Workers Directive should be extended to a 6 month period.
— It is essential that a common sense
approach be taken with the Age Discrimination legislation and
that the end point of the employer/employee relationship defined.
Therefore, a mandatory state retirement age must be included in
the proposals. Further, the costs to SMEs must be more closely
analysed as the current RIA does not provide accurate estimates.
— The UK currently suffers from an
acute skills shortage which is a barrier to raising productivity
and competitiveness. The problem is that not enough people pursue
vocational routes of learning and too many young people are encouraged
to pursue academic routes when it is not in their interests or
the interests of the economy to do so. The Government must fully
incorporate vocational routes throughout the national curriculum.
INTRODUCTION
1. The British Chambers of Commerce (BCC)
welcomes the opportunity to respond to the Trade and Industry
Committee's investigation into UK employment regulations and the
contribution labour market flexibility makes to the economy. The
BCC's response is divided into the following sections:
— Total costs of employment regulations.
— Working Time Directive: Impact on
labour market flexibility.
— National Minimum Wage and introduction
of new 16-17 year old Minimum Wage.
— Temporary Agency Workers.
— Availability of a skilled workforce.
— Recommendations to the Government.
COST OF
EMPLOYMENT REGULATIONS
2. The burden of regulation continues to
be of great concern to UK businesses as it represents a significant
factor in the erosion of our competitive advantage. The BCC Burdens
Barometer[1]
lists the total cost of regulations introduced on business since
1998 through calculating the Regulatory Impact Assessments (RIAs)
produced by Government departments. The latest Burdens Barometer
(2004) found the total cost of regulations introduced from 1998
until July 2004 to be £30 billion. This figure excludes the
cost to business of the National Minimum Wage Regulations 1999
and subsequent amendments to the rate estimated in the RIAs to
have cost £13.5 billion.
3. Analysis of our Burdens Barometer reveals
that out of the total £30 billion in extra regulation, £12.68
billion is resultant from employment regulations. The most costly
employment regulation has been the Working Time Regulations 1999
costing £11 billion since its implementation. The most recent
additional cost has been the Flexible Working (Procedural Requirements)
Regulations in April 2003 which have cost £404 million. Other
significant employment regulatory costs have included the Employment
Act 2002 costing £565 million, Employment Relations Bill
2000 costing £215 million, Part Time Workers (Prevention
of Less Favorable Treatment) Regulations 2000 costing £112
million, Maternity and Paternity Leave (Amendment) Regulations
costing £64 million, and the Transnational Information and
Consultation of Employees Regulations 1999 (European Work Councils)
costing £72 million.
4. The cost of employment regulation is
continuing to increase. In 2002-03 the total cost of employment
regulation introduced since 1998 was £10.5 billion. However,
in the last year the total cost of employment regulations has
risen by 21% to £12.68 billion. The largest proportion of
this increases comes from the Employment Act 2002 and Flexible
Working Regulations which have added £969 million.
5. The key to effectively lightening the
regulatory load on business is to address the heart of the problem.
In our report "Do regulators play by the rules? An audit
of the Government's Regulatory Impact Assessment System"[2]
we found little evidence that RIAs have caused legislation to
be aborted. Our research has shown that for all 165 RIAs published
in 2002-03 the cost of regulations were rising whilst the benefits
were declining. This trend directly contravenes the Cabinet Office's
own guidelines which state that the "benefits must justify
the costs."
6. In our study last year of the period
since RIAs were formally introduced, we found only 11 cases where
RIAs have caused legislation to be aborted. However, this may
be because the Regulatory Impact Unit web-site only lists Final
RIAs and there is have no way of tracking initial and partial
RIAs that were subsequently withdrawn. The option of not regulating
appears to have been considered in only 11% of the analysed RIAs
and less than half of the RIAs (44%) quantify all the options
considered. The rest provide cost/benefit analysis for the preferred
option only (31%) or no quantification at all (24%). This makes
the decision to adopt, amend or reject a regulation biased and
greatly reduces the usefulness of the system.
WORKING TIME
DIRECTIVE: IMPACT
ON LABOUR
MARKET FLEXIBILITY
7. The European Commission is presently
reviewing the Working Time Directive and more specifically the
UK opt-out from the maximum 48 hour working week. The BCC has
consulted our entire membership on this issue and we strongly
support the UK retaining the use of the opt-out from the 48 hours
maximum working week. Business needs a flexible economic environment
to maximise productivity and profitability. A central ingredient
to this environment is a flexible labour market. Restrictions
on working hours would serve to erode the flexibility of the labour
market.
8. The BCC believes that the availability
of an opt-out from the 48 hour maximum working week is extremely
beneficial to employers and employees. A large proportion of the
BCC's membership consists of small and medium size businesses.
Losing the opt-out will place restrictions on labour market flexibility
and will lead to operational difficulties, particularly for small
businesses. A recent BCC Survey found that 90% of employers currently
make use of the opt-out.[3]
The BCC believes that if an employee chooses of his own free will
to work longer hours and is appropriately rewarded for doing so,
that the employee should be free to do so.
9. The opt-out allows businesses to deal
with fluctuations in customer demand. The value of such flexibility
is illustrated by a BCC member in response to our survey.[4]
A security provider with 32 employees said that:
"We have scheduled engineering work during
normal hours, but can not dictate the volume of emergencies that
we receive requiring emergency attendance and repairs. Therefore
our engineers have to remain flexible in the hours they work,
through their own choice. We do not have the resources or cash
to cope without employees signing the opt-out. "
10. Employees value the opt-out because
a forced reduction in working hours would result in lower earnings
and lower living standards. The freedom to choose how long they
work is important. For example, one BCC member who runs a design
company with 15 employees said:
"Staff who work more than 48 hours do
so because they want to for whatever reason, and financial is
the main one. Removing the opt-out would mean staff would work
the contractual hours with us and work several other jobs elsewhere.
"
Another member who runs a food warehousing company
with 40 employees says,
"many employees rely heavily on overtime
as normal pay to live how they want. They would see the taking
away of this choice as detrimental. "
11. An example from our survey illustrates
the importance of flexibility to deal with seasonal peaks. An
employer of a manufacturing business with 2,300 catalogued products
said that "May until September are historically busy months
for our manufacturing business. We do not know with great definition
the mix of orders to come for that period. Our employees look
forward to it as a short term defined period of hard work to earn
extra money."
NATIONAL MINIMUM
WAGE (NMW)
12. The BCC are not against the minimum
wage which was introduced under the National Minimum Wage Regulations
1999. Employers should fairly remunerate their employees. However,
the successive yearly increases of the minimum wage above the
rate of inflation and national average earnings are not sustainable
and could start to have an impact on employment levels. This regulation
has cost £13.5 billion. Further, the forthcoming introduction
of a 16-17 years old minimum wage will add further costs and have
a detrimental impact on the flexibility of the labour market.
13. When the NMW was introduced in 1999,
it was set at a reasonable rate. However, since 1999 the NMW for
over 21 years old has increased from £3.60 an hour to £4.50
and is set to increase in October to £4.85. The rate for
18-21 year olds has also increased from £3 to £3.80
in October, is also set to rise again to £4.10 in October.
14. This year alone the NMW for over 21
year olds has increased by 7.7% and the rate for 18-21 year olds
has increased this year by 7.9%. Inflation is currently 1.4% and
the annual average earnings increase rate is 3.4%. Therefore the
increases this year in the NMW rates are over five times the rate
of inflation and over twice the rate of the increase in average
earnings. These large percentage increases this year together
with a 25% increase in the rates over the previous four years
have resulted in a reasonable rate becoming increasingly unmanageable
for business. The continual increases are not sustainable and
the Government must cap the rate of the increase.
15. The rate of £3 for the new 16-17
year old NMW is set at a reasonable rate. However, the increases
over the last five years in the other two NMW rates suggests that
this rate will be over £4 in the coming years. Further, the
BCC is concerned about the potential impact of the new 16-17 year
old NMW on the flow of skilled workers into the labour market.
In a ranking of the number of 17 year olds remaining in education
or training, the OECD have ranked the UK 25th out of 29 countries.
The prospect of earning higher salaries at 16-17 years old will
act as incentive for young people to leave education or training
and enter employment. This is not in the interest of young people
or the economy as a whole. A highly skilled workforce is the foundation
of a competitive and productive economy.
16. The Government have consistently stated
that their central priority for young people is to ensure that
they acquire the skills necessary for them to progress successfully
through their working life and acquire the skills which reflect
employers' needs. The 16-17 year old NMW would serve to undermine
the Government's urgent drive to increase the skills of young
people through the Skills Strategy and the Review of 14-19 year
olds education.
17. However, the BCC welcomes confirmation
from the Government that the 16-17 year old NMW will not apply
to employers who have young people undertaking workbased training.
If this wage rate had applied to this group employers would have
cut the number of young people on workbased learning who currently
earn approximately £50 per week whilst on their training.
Therefore although the new NMW will act as a disincentive to young
people from staying on in education or training it will not act
as a disincentive to employers who are training young people.
18. The NMW therefore present two potential
dangers. Firstly, if the NMW continues to rise at the rate it
has over the last five years, this could force businesses to cut
costs. The result will be either cutting operational costs by
for example, cutting the number of employees or by passing costs
to consumers and thereby undermining competitiveness. The BCC
recommends that the NMW for 18-21 year olds and for over 21 year
olds be capped in line with inflation.
19. Secondly, the NMW for 16-17 year olds
could harm the flow of skilled workers into the economy. The BCC
therefore recommends that the exclusions from workbased learning
should remain but also the rate of £3 should also be capped
to prevent adding further incentives for young people to leave
education or training.
WORK LIFE
BALANCE
20. The light-touch approach to flexible
working has been a success over the last year. Flexible working
benefits business by encouraging higher levels of productivity
and increasing staff retention. Encouraging employers to think
creatively about how their employees can work flexibly is a better
approach than burdening them with more rules and regulations.
The Flexible Working Regulations 2002 which came into force in
April 2003 have cost £404 million. It is crucial that the
right to request flexible working is kept as informal as possible
so that additional cost are not placed on employers.
21. Research conducted by the Office for
National Statistics found that, in its first year of operation,
almost one million mothers and fathers have requested flexible
work, with 77% of companies automatically agreeing new terms,
and a further 9% reaching some sort of compromise.
22. The current light touch approach has
been successful and therefore the BCC would not support adding
to the current Regulations. The Government must honour the commitment
it made not to review the Regulations until 2006.
TEMPORARY AGENCY
WORKERS
23. The UK's labour market has different
characteristics from other EU member states, consequently the
Directive's provisions would have a very different effect in the
UK. The UK has more temporary workers than any other EU state,
over 700,000 at any one time, or about 3% of the workforce. Full
parity of benefits and conditions between temporary and permanent
workers would raise the cost of hiring temporary staff, making
them a much less attractive prospect for employers, and leading
to fewer employment opportunities for workers who want flexible
working arrangements.
24. Equal treatment regarding pay and working
conditions for temporary workers would also put substantial additional
administrative burdens on user enterprises (particularly SMEs).
Additionally, small firms with no dedicated human resource expertise
would be concerned that if they get it wrong on equal treatment
for temporary workers they could be taken to tribunal. This would
further discourage user firms from recruiting temporary labour
and reduce employment opportunities for temporary workers, which
at present could possibly lead to permanent work.
25. The BCC, along with the Government and
other representative bodies, have consistently argued that the
proposed Directive could backfire against those it is intended
to help by reducing temporary employment opportunities. Currently
the legislation includes a six week period before a temporary
worker is entitled to the same benefits as a full time employee.
The BCC is lobbying for a six month period.
AGE DISCRIMINATION
26. The UK has the third highest participation
rate in the EU of both older workers and younger workers. The
UK's strong record is a result of the flexibility of the UK labour
market. The main concern for business in the current proposals
is the plan to abolish Normal Retirement Ages (NRAs). The BCC
believes it is necessary and beneficial to set an end point to
the employment relationship.
27. The BCC is concerned about the financial
impact on SMEs of this Directive. The RIA stated that there is
likely to be a significant effect on smaller firms (those with
fewer than 50 employees). The RIA reports that small firms will
"bear disproportionate implementation costs, which are expected
to be relatively high because of the complex nature of the subject."
The BCC is concerned with the reliability of the Government's
calculations and more precise figures are needed. Indeed, the
RIA states with reference to the costs and benefits that "some
of the assumptions will be pure guess work" and with reference
to the numbers likely to be affected that there "are at present
no reliable statistics." There are currently 1.14 million
small employers. Implementation of the proposals is estimated
to cost small firms between £120 million and £140 million
overall. (Total implementation costs are estimated at £141-£155
million.)
28. Amongst the recurring costs, Employment
Tribunal costs are estimated to be about £16-£32 million,
with each individual application costing the employer £2,000.
It is estimated that employers could be faced with an extra £73
billion worth of claims and 8,000 extra cases a year from this
legislation, a fifth of which related to retirement issues.
AVAILABILITY OF
A SKILLED
WORKFORCE
29. The availability of skilled workers
is fundamental to the strength of the economy. However, the UK
has been suffering from acute skills shortages. The BCC Productivity
Survey found that 36.4% of businesses cited skills shortage as
a barrier to raising productivity. The UK productivity rate is
25% below the US and France, primarily because of the current
skills shortages. OECD figures show that the UK has slipped from
13th to 22nd in a table ranking the numbers leaving education
with poor qualification and 25th out of 29th in a table ranking
the numbers staying on in education or training. Further, a recent
Learning and Skills Council survey[5]
found that one fifth of job vacancies in the UK remain unfilled
because of a lack of skilled applicants and more than a third
of firms are delaying new projects because they could not find
the right people.
30. In a recent BCC survey[6]
one respondent illustrated the impact of skills shortages by commenting
". . . we operate in a low unemployment area with few skilled
workers. Therefore we must rely on those that work for us to be
flexible. We have no other people left to employ in the area."
31. To improve the supply of skilled labour
into the workforce the BCC have various long term recommendations:[7]
— The Government must shift the focus
of its education policy toward vocational education. Vocational
routes of learning must be present as equal to academic.
— There should not be a target for
university participation. Those who can benefit from a university
education should go to university. However, currently there are
high drop out rates and declining numbers entering graduate level
jobs.
— The Government must ensure that young
people entering the workplace have basic literacy/numeracy/IT
and communication skills.
RECOMMENDATIONS
32. Monitor and reduce Regulatory Burden:
To help monitor and reduce the regulatory burden on business from
employment regulations we would recommend that the Government
adopt the BCC's database of RIAs as the standard RIA reference
point nationally for all government departments. The Government
should incentivise departments to carry out genuine consultations
when compiling a RIA and submit the consultation process to independent
scrutiny. There should be measurable targets set for each government
department for the reduction of compliance costs to business through
deregulation and the introduction of government departmental budgets
for every new regulation introduced. Ministers should only sign
RIAs where there is rigorous evidence that the benefits justify
the costs.
33. Retain the Opt-Out from Working
Time Regulations: The BCC strongly support the retaining of
the opt-out from the 48 hour working week as this opt-out is an
important ingredient to our labour market flexibility. Employers
value the opt-out because it enables them to keep costs down (both
directly through having to employ more people and indirectly through
finding space to put them, for example); because they wish to
avoid industrial disputes over the interpretation of the regulations;
because many do not have the infrastructure in place to make collective
or workforce agreements in order to make the reference period
more flexible; and because the definition of autonomous workers
in the UK statutory instrument is unclear.
34. Cap the National Minimum Wage and
retain the training exclusions. The NMW has increased from
£3.60 to £4.85 since 1999. The BCC recommends that the
NMW be capped in line with inflation. The new NMW for 16-17 year
olds could harm the flow of skilled workers into the economy.
The BCC therefore recommends that the exclusions from workbased
learning should remain but also the rate of £3 should be
capped to prevent adding further incentives for young people to
leave education or training.
35. Do not legislate to strengthen flexible
working regulations. The Flexible Working Regulations 2002
have been a success. Therefore there is no necessity to add to
the current Regulations, which only came into force a year ago.
Further, the Government stated that no review would occur within
the first three years.
36. Extend the current six week exclusion
period of the Temporary Agency Workers Directive to a six month
period. The UK has more temporary workers than any other EU state,
with over 700,000. Therefore full parity of benefits and conditions
between temporary and permanent workers would raise the cost of
hiring temporary staff, making them a much less attractive prospect
for employers, and leading to fewer employment opportunities.
37. Include a mandatory state retirement
age within the Age Discrimination Legislation. It is essential
that a common sense approach be taken and that the end point of
the employer/employee relationship defined. Therefore, a mandatory
state retirement age must be included in the proposals.
38. Place greater focus on vocational
learning to address current skills shortages. The UK currently
suffers from a critical skills shortage which is a barrier against
raising productivity and competitiveness. The problem is that
not enough people pursue vocational routes of learning and too
many young people are encouraged to pursue academic routes when
it is not in their interests or the interests of the economy.
The Government must fully incorporate vocational route through
the national curriculum.
June 2004
1 BCC Burden Barometer 2004. Back
2
British Chambers of Commerce, February 2003. Back
3
BCC Online Survey, 2004. Back
4
BCC Online Survey, 2004. Back
5
UK Learning and Skills Council Survey 2004. Back
6
BCC Survey on Working Time Directive 2004. Back
7
For more detail on BCC skills recommendations please contact
Lewis Sidnick, BCC Policy Adviser.
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