Red tape burden something of a myth, says CIPD

The idea that British businesses are clogged and tied by red tape doesn’t bear scrutiny, the Chartered Institute of Personnel and Development (CIPD) has argued.

Poll after poll of employers, especially among smaller firms, have suggested that employment legislation is one of the most forceful brakes currently applied to business growth.

But according to the CIPD’s latest paper, The Rights and Wrongs of Employment Regulation, the business community’s bias against legislation actually flies in the face of hard economic facts.

The report questioned the real level of the regulatory burden, pointing out that the UK labour market is the third least rule-governed in the developed world even though several new laws have been imported from the EU in recent years.

The CIPD also insisted that impact assessments, which measure the administrative cost of new regulations, are often distorted.

Meanwhile, the rise in the number of employment tribunals is more the result of an increase in multiple claims (where many employees are claiming in relation to what is in effect a single dispute with one employer) and the impact of the recession than it is of over-regulation.

The report went on to say that there is little convincing economic evidence that employment regulation accounts for the long-standing productivity gap between the UK and our major competitor economies.

In conclusion, the report recommended that the prime focus of regulatory reform should be on streamlining the red tape that accompanies regulation rather than on watering down the substance of existing employee rights and entitlements.

John Philpott, the CIPD’s chief economic adviser, said that underlying problems of structural unemployment and productivity shortfalls in the UK economy cannot be attributed to any negative impact of employment regulation.

They are due instead to a whole range of workplace shortcomings such as relatively low rates of capital investment, long-standing deficiencies in the supply and quality of work related skills, poor management of available skills in the workplace, and work disincentives stemming from the welfare benefit system.

Dr Philpott continued: “Further de-regulation of an already relatively de-regulated labour market will do nothing to help solve these structural problems and might well exacerbate them.

“The fact that business organisations seem content to accept official economic assessments that conclude regulations impose costs, while questioning those that conclude there will be net benefits, implies a deregulatory mindset that owes more to ideology than evidence. It is time UK business stopped seeing red whenever employment regulation is mentioned and instead adopted a more balanced, evidence-based perspective.”

The Institute of Directors (IoD) countered by asserting that excessive employment regulation is one of the most damaging features of the current UK business environment.

Miles Templeman, director general of the IoD, said: “SMEs, many of which can’t afford to employ HR staff, particularly struggle with employment law. The government needs to make it easier for businesses to employ and manage staff so that we can improve our competitiveness internationally and boost private sector growth. There is clear scope for making some big improvements to regulations without disadvantaging workers.”

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