How expensive are workers’ rights?

Labour believe that £5bn is value for money – but business groups disagree.

Labour’s new plan for workers’ rights will cost businesses £5bn a year, according to government analysis released yesterday. This great news, because it suggest that workers’ rights are very cheap, and there is no reason not to legislate in favour of them.

To put that £5bn into context, the UK’s 5.6 million private businesses had a total turnover of £4.48tn last year (this doesn’t include banks or insurance companies as their turnover isn’t comparable). The total wage bill for UK businesses last year was £1.3tn. Against these numbers, a £5bn direct cost represents a fraction of a percentage point. It’s a handful of snow days. It’s not nothing, but it is dwarfed by the economic impact of other policy decisions.

The most obvious of these is Brexit, which the Office for Budget Responsibility says has reduced the UK’s trade by 15 per cent and potential productivity by four per cent. HMRC’s original forecast (in 2019) for the direct cost to businesses of the border controls alone was £7.5bn a year.

Brexit was the project of a government that was ostensibly committed to buccaneering deregulation, but in 2022 the government’s Regulatory Policy Committee found that far from burning red tape, it had introduced new regulatory costs of £9.9bn to businesses in a single year. This was almost certainly an under-estimate, because the measure used – the Business Impact Target – excluded billions more from direct costs such as tax administration and self-regulation. (The target was scrapped last year.)

If ten million low-paid workers can be given significant new protections for less than half a percentage point on the national wage bill, this is astonishing value for money. The forecast improves still further when the benefits of the policy are taken into account; the value in “wellbeing-adjusted life years” is estimated at £3bn per year. The forecast also cites other costs – the billions of pounds in output lost to anxiety, depression, strikes and workplace conflict – that it expects will be reduced by the bill.

Not everyone is so optimistic. Businesses that employ lots of people on lower incomes, such as hospitality, are concerned at the extra risk this will add to hiring decisions. The government forecast acknowledges that the costs will fall disproportionately on smaller businesses, which is why the Federation of Small Businesses (FSB) is one of the most vocal critics of the bill. Tina McKenzie, the FSB’s policy chair, has warned that it will “deter small employers from taking on new people, for fear of facing an employment tribunal simply because a new recruit turns out to be unsuited to the role”.

If the government is going to stand by its forecast, however, it will need to find ways to relieve the impact on small businesses of added worker protections rather than watering down the legislation, because the bill represents a thesis about how the economy works.

This thesis can be found in the forecast: “Too much insecure work and a fragmented labour market can undermine conditions for growth and investment.” The extreme commodification of labour, particularly within the “gig economy” of precarious semi-employment, has been recognised by successive governments; the 2017 Taylor Review described how the UK had succeeded in creating a very flexible labour market, but one in which large numbers of people were immiserated by zero-hours contracts, poor work and low pay. The apparent innovation of companies such as Uber and Deliveroo was largely a disruption of the way in which people were employed.

Underlying the Employment Bill is the idea that this is not just about the moral case for offering stability and a decent standard of work, but the economic consequences of not ensuring these things. There is now good evidence – ask a delivery driver, as I have – that without secure and predictable work, people are less likely to pursue training that would allow them to acquire new skills. It is also associated with poorer health. Reports such as the recent Economy 2030 inquiry make a compelling case that these are the factors that the UK must address to break out of it stagnant economic condition. If a major step towards doing so could be taken for as little as £5bn then this is cause for celebration.

This piece first appeared in the Morning Call newsletter; receive it every morning by subscribing on Substack here

[See also: Who made Keir’s cut?]