A ‘New Deal’ for fewer jobs and worse pay?

Labour’s promise of a ‘New Deal for Working People’ is deliberately worded to evoke the era of Roosevelt, when major federal interventions supposedly shook America out of the Great Depression and conclusively demonstrated the benefits of Keynesian economics. But even Keynes knew it was more complicated than this. Alongside stimulus, he wrote that reversing a downturn depended on the “animal spirits” of entrepreneurs and that prosperity required “a political and social atmosphere which is congenial to the average business man.”

What, then, to make of the Employment Rights Bill, due to be published tomorrow, which will make the government’s New Deal a legislative reality? It is expected to include employment protections from day one, a ban on ‘exploitative’ zero-hours contracts, an increase in the living wage and a reduction of probation periods to six months.

Good businesses already recognise the value of worker benefits in attracting talent, but it should go without saying that employers know best what setups suit their needs.

It should go without saying that employers know best what setups suit their needs

Regulation is never cost-free, and the likelihood is that increased costs will be passed on to workers in the form of lower wages (or fewer wage increases) and fewer jobs – with already marginalised groups most affected. Enshrining maternity pay from the first day in a new position could, for example, make it harder for some women to move to a new, better-paying job, just at the point in a career when the gender pay gap begins to open up. 

Increasing and extending the national living wage will make it more expensive to hire younger workers, who are also most likely to be on zero-hours contracts. Far from being ‘exploited’, research by the Centre for Social Justice (hardly a full-throatedly free market organisation) finds that 74 per cent of 16-34 year-olds in exactly these kinds of jobs are satisfied with their employment terms and would like more hours, and therefore more income. Instead, they will find it harder to get that first foot on the employment ladder. As for curtailing probation periods, this increases risks to recruiters and will likely lead to a costly spike in employment tribunals. It’s also the case that while some sectors (and businesses) will absorb these new rules, certain others will find it much harder to do so.

No wonder business confidence has fallen for the first time in a year, according to ICAEW. As she prepares for her first Budget, the Chancellor should remember that no ‘New Deal’ can create the spontaneity and optimism for the future that drives entrepreneurship, but that governments can get in its way. And once those ‘animal spirits’ become dimmed, things can get very dark indeed.