Britain must give business a break
This week’s higher minimum wages and new rights for flexible working will only harm the economy
The last few years have been tough for small businesses. The pandemic closed many of them down for more than six months. Corporation tax rates have risen by almost a third, and those in the crucial services sector can rarely claim any of the deductions for investment designed to compensate for that punishing increase. Business rates have started going up again, often very steeply as councils struggle to fill holes in their budgets. And the economy is in recession and shows little sign of growing significantly anytime soon.
But there is nothing like kicking someone when they are already down. So this week, businesses of all sizes will be hit with another round of mandated pay rises and yet more extensions of employees’ rights.
Pubs pushed to the brink
On Monday, the National Living Wage – the legal minimum wage for employees over 21 – rose to £11.44 per hour, an increase of almost 10%. Of course, everyone wants to see higher wages, especially at the bottom end of the pay scale, and most employers want to treat their staff generously. But that doesn’t mean this week’s extra rights won’t prove expensive. There is already mounting evidence that the steep rises in wages are putting a huge financial strain on many companies, especially in sectors such as hospitality that employ lots of people.
In January, Revolution Bars said it was closing eight of its outlets, blaming the decision in part on the higher minimum wage making them too expensive to run at a time when its customers were also spending less on going out. About 100 staff will be affected. The RedCat Pub Company last week called in the administrators to part of the chain as it was hit by a soaring minimum wage bill among other factors. The trade body UKHospitality, which represents bars and restaurants, has already warned that imposing a big pay rise on companies every year was pushing many of them to the brink.
Flexible work makes things worse
Meanwhile, from this weekend staff will have a statutory right to ask for flexible working from day one of their employment, instead of having to wait for six months before putting in a request. Carer’s leave will be introduced, giving any long-term carer the right to request an additional week of leave during any 12-month period. And there will be extra rights to paternity leave, as well as enhanced redundancy protection.
There is already plenty of evidence that companies are struggling with flexible working, as well as working from home. Productivity in the public sector where it is most deeply entrenched has fallen significantly since the pandemic, and it has flatlined among private companies. We are told that creating a better working environment will improve loyalty and commitment among staff, but there is very little sign of that. Many companies are already struggling to get their people into the office more than three or four days a week. Extra rights to flexible working, as well as extra paid holidays, will only make that worse.
Ruling from a parallel universe
In reality, our governing class is still living in a parallel universe. It assumes that the UK is a rich country with a successful economy, and all we need to do is discuss how we distribute the wealth it creates fairly. And it assumes that businesses will just carry on regardless of what is thrown at them. We can keep on imposing more costs and introducing new rights, and the economy will still expand, companies will still hire more people, and the tax revenues will keep on rolling into the Treasury. And yet, increasingly that is clearly no longer true.
There is always a tipping point, and on wages and employment rights the British economy has already reached it. We don’t have to wait for a Labour government to replace the supposedly pro-business Conservatives. The latest round of changes will be enough to turn what should have been a mild recession into a deep one – and there is little sign that anyone in government yet has a clue that something needs to be done to change direction.