The UK’S flexible labour market is dying a slowmotion death. The reckoning will be terrible
Britain just doesn’t have big enough productivity levels to sustain this punishing working model
The infrastructure was often crumbling. Skills were poor compared with most other developed countries. And over the last decade, the political system was increasingly chaotic, as well. As a place to do business, the UK has long had plenty of negatives. It always, however, had one big thing in its favour. You could expand or shrink your workforce relatively easily, and fit people into the roles required. Not any longer. We are witnessing the slow-motion death of Britain’s flexible labour market. Now with one of the highest minimum wages in the world, with everincreasing rights to flexible working, and, worst of all, with Labour planning a huge extension of workers’ rights, the UK is about to combine French levels of labour protection with Soviet levels of productivity. It is the worst of all possible worlds – and will crush what little life remains out of the economy.
The Government was quick to boast about this week’s increase in the minimum wage from £10.42 to £11.44 for workers over 21. The Labour Party joined in the celebrations, this year being the 25th anniversary of what it now regards as one of the most successful reforms of the Blair years. The trouble is, apart from a handful of restaurateurs and publicans struggling with a rising wage bill, few have stopped to consider whether it has been pushed up too far.
We are beating almost everyone on legally mandated pay. According to a recent Commons report, in 2022 the UK already had the eighth highest minimum wage in the OECD once adjustments were made for exchange rates and prices, ahead of far richer countries such as the US and Canada.
And we are still climbing in basic monetary terms. We are now above France, previously top of the table: our new minimum is now the equivalent of around €13.30 per hour, whereas France’s SMIC, as it is known, rose by only a modest 1.1pc this year to €11.65. Likewise, Australia’s minimum wage, traditionally one of the highest in the world, is now £12.03 per hour, only a fraction above the British rate, and given that it is currently only rising by 5pc annually we may soon overtake it. Indeed, we could soon have the highest minimum wage in the world. It does not stop there. This week, the Government is also introducing a raft of new rights. On your first day in your new job, as well as figuring out where the coffee machine is, you can now put in a formal request for “flexible working”, instead of having to wait for six months. And there will be extra rights to leave if you’re a carer, and beefed-up employment protection. In the background, employment tribunals are more draconian than ever in seeking compensation for staff let go.
When Labour takes power, as it certainly will later this year, we will see a lot more extra employment rights. The party does not have many firm policies, but its commitment to a labour market package has been steadfast. We will see extra trade union rights, a ban on zero hours contracts, a “right to switch off ”, and gig work subjected to the full range of employment regulations. The HR officers and employment lawyers will reign supreme. Add it all up and one point is clear. We are witnessing the slowmotion death of Britain’s flexible labour market. The trouble is, that was perhaps the central achievement of the Thatcher years, and one that, despite all our other challenges, powered three decades of steady growth.
Sure, everyone wants to see people paid well and we all agree that employers should treat their people generously. And yet a flexible labour market allowed companies to innovate, it allowed entrepreneurs to take risks on expansion, and it gave the economy room to breathe, and to accommodate the inevitable dips in the global business cycle. It powered growth.
We are already seeing the dismal impact the end of that miracle is having. First, many businesses are buckling under the financial strains now being imposed. In January, Revolution Bars said it was shutting eight of its outlets in part because the minimum wage made them too expensive to run. The Redcat Pub Company last week called in the administrators. Uk-hospitality, representing bars and restaurants, has already warned that imposing a big pay rise on companies every year was pushing many of them to the brink. It is starting to hurt. Next, we are seeing a huge rise in “inactivity” among younger workers. It is not hard to work out what is going on. Whereas employers might used to have been willing to take a chance on a teen or twenty-something looking for their first break, secure in the knowledge that if they turned out to be useless they could get rid of them, now it may well be too risky. They will be expensive, and perhaps impossible to fire, so why bother?
It may not be long before we have the same kind of youth unemployment rates witnessed in heavily protected and regulated labour markets such as Spain (with a 28pc youth jobless rate) and France (at 17.5pc).
The UK now has French-style labour protection, but without anything like the same levels of productivity. It is the worst of all possible worlds. It is already starting to crush the life out of the economy, and with Labour’s planned reforms that is only going to get worse.
A political class that assumes the UK is a rich country, and that businesses will simply put up with whatever costs are imposed on them, has squandered one of our few competitive advantages – and we will find it very hard to claw it back now that it is gone.