Written evidence from London Chamber of Commerce and Industry (ERB0092)

 

Summary of LCCI policy positions for the Making Work Pay consultation

December 2024

The London Chamber of Commerce and Industry welcomes the Government’s consultations on their “Making Work Pay” measures. Many of these issues are of significant interest and in some cases concern to our members, who we recently surveyed about the proposal.

Context

  1. The London Chamber of Commerce and Industry is the capital’s largest independent business advocacy organisation. In representing the interests of over 9,500 businesses, we champion London as the global city in which to trade, invest, grow and find new commercial partners. We work tirelessly to raise awareness of the key challenges facing businesses and the policy responses needed to address them, with the ultimate aim of helping London businesses, and in turn the whole of the UK economy, to thrive.
  2. London plays a critical role in the national economy, with the capital contributing over 20% towards UK GDP. However, the recent Budget has increased the cost on business to employ staff with the lowering of the threshold combined with the increase in national insurance contributions for employers.
  3. This, alongside other tax rises, has been combined with the increased regulatory burden in employing staff with the London plays a critical role in the national economy, with the capital contributing over 20% towards UK GDP. However, the recent Budget has increased the cost on business to employ staff with the lowering of the threshold combined with the increase in national insurance contributions for employers. This, alongside other tax rises, has been combined with the increased regulatory burden in employing staff with the Employment Rights Bill.
  4. We recognise that the Government has a mandate to change employment law as it was a clear manifesto pledge during the General Election campaign. However, these changes must not lead to excessive regulatory burdens on businesses during the ongoing cost of living crisis, inhibiting their ability to invest, create jobs, and deliver economic growth.

 

Impact Assessment

  1. The Government’s own initial impact assessment identified an initial estimated cost to business of around £5bn per year, with a 0.4% increase to wage bills. It notes that the impact will be felt disproportionately by SMEs, with the costs incurred through additional admin and the transfer of resources from the business to the individual. It also states that the measures are unlikely to have a positive impact on growth.
  2. Concerningly, at the time of writing the Regulatory Policy Committee gave the Employment Rights Bill a “red” rating and found that the Government has likely underestimated the costs of the measures for business and the negative impact on economic growth. It assessed 8 of the 23 Impact Assessments as ‘not fit for purpose’ and recommended the Impact Assessments be updated to include “labour market and broader macro-economic analysis to understand the overall impact on employment, wages and output, and particularly the pass-through of employer costs to employees and other dynamic impacts.
  3. Eight individual IAs and the summary IA need to provide further analysis and evidence in relation to the rationale for intervention, identification of options (including impacts on small and micro-businesses) and/or justification of the chosen way forward.”
  4. A snap survey of LCCI’s members following the announcement of the Employment Rights Bill found that 76% of respondents– ranging from sole traders to CEOs of firms with 250+ employees – felt that the Government had not engaged enough with the business community on the measures in the Bill.
  5. The potentially significant underestimate of the Bill’s cost to business and the wider economy is a consequence of that lack of engagement. Members also confirmed that they are already considering cost-cutting measures to mitigate the impact of the Bill, with 38% of respondents in an LCCI snap poll considering a hiring freeze as a direct result of the measures.
  6. We therefore call for an updated impact assessment that fully takes into account the impact on employment, wages and output before any of the proposed measures are enacted. This impact assessment could also take account of the labour differential impact in each of the nations and regions of the UK. For instance, in London, the five boroughs with the highest numbers of jobs in 2021 were all in inner London – Westminster, Camden, Tower Hamlets, Southwark and Islington. The boroughs with the 6th and 7th highest number of jobs in 2021 were the outer London boroughs of Hillingdon and Hounslow. Heathrow airport has been the key driver of both boroughs’ economies.
  7. Excluding Lewisham and Greenwich, all the boroughs with fewer than 100,000 jobs are in outer London. Though Barking and Dagenham has seen the third largest increase in jobs over this period (15 per cent), in 2021, it remained the borough with the fewest overall jobs in London. Seven boroughs have seen a decline in the number of jobs between 2015 and 2021, notable examples including Hounslow, Lambeth and Kingston upon Thames. Therefore, any regulatory changes may have a differing impact in each borough of the capital.

Day One employment rights

  1. While LCCI supports the principle that workers should not be unfairly dismissed, we also believe that full employment rights from day one is unrealistic and does not reflect the practical needs of either employers or workers. In all employment relationships, there is a need for the employee and the employer to ascertain whether they are a good fit. The probationary period is key to this process.
  2. Any regulatory interference in this regular employment relationship would be yet another deterrent for many SMEs to employ staff on top of the significant costs on hiring imposed in the Budget. It could particularly deter employers from “taking a chance” on a prospective employee, such as an inexperienced school leaver or someone who has been out of work for a long time, as they will not want to take the risk of being unable to end the arrangement if it doesn’t work out.
  3. This would place the Government’s “Get Britain Working” proposals, which are critical to delivering economic growth, at risk of failure. In the Next Steps document (accompanying the Employment Rights Bill), the Government proposes “a lighter-touch and less onerous approach” for businesses to follow when dismissing someone who is not right for the job. Despite this reassurance, it is as yet unclear what meaningful safeguards the Government will introduce to mitigate against employment tribunal claims.
  4. We understand from engagement with officials that the Government is considering introducing a nine-month probationary period before full employment rights are considered. This is a step in the right direction and recognises the barriers to hiring that businesses face, but it still makes hiring significantly less appealing than it is now. This measure will have a disproportionate effect on SMEs, who can least afford the red tape and potential litigation from an unfounded or vexatious unfair dismissal claim.
  5. The Government must pay close attention to these potentially onerous financial consequences when legislating upon the maximum compensatory awards available to successful claimants, dismissed during their probationary period. The proposal also risks further burdening the already overloaded Employment Tribunal system, further delaying access to justice and legal costs for employers. We would respectfully invite the Government to look again at this proposal in light of an updated impact assessment on the costs for businesses and the economy.

Making Work Pay: Collective redundancy and fire and rehire

Protective awards

  1. While LCCI supports the principle that businesses must follow their collective redundancy obligations, members have significant concerns about the proposal to either double or remove altogether the cap on the ‘protective award’ that employment tribunals can require businesses to pay to each employee affected when an employer does not follow their collective redundancy obligations.
  2. A snap LCCI poll found that the proposed increased cap on ‘protective award’ payments, was predicted by 35% of firms to negatively or very negatively impact their business operations if they were affected. Only 2% of businesses considered that the measure would have a positive or very positive impact. If a business is already in a financial position where they’re having to make redundancies an uncapped award could be enough to force them into closure or bankruptcy, losing the remaining jobs and increasing the burden on the welfare bill.
  3. Members are also concerned about the proposal where employees who bring claims for the protective award could be entitled to interim relief. In cases where a business has made a genuine mistake or an employee has made a vexatious claim this award could be enough to render an SME that is already struggling sufficiently to have to make people redundant unprofitable before they have had the chance to clear their name

Fire and rehire

  1. The proposed abolition of the right to fire and rehire holds the employer’s feet to the fire in moving from a low threshold, focussing on “sound business reasons”, to a much more onerous one. The proposal requires the employer to demonstrate that it could not reasonably have avoided the need to vary contracts, for example the alternative being insolvency.
  2. Whilst it can be seen that the Government is at pains to deter a repetition of a P&O 2.0, few if any LCCI members are employers of that magnitude. The concern is that its members may be unduly fettered when making legitimate decisions for the survival of their business. The proposal introduces an unduly high standard. Businesses will essentially have to delay making changes to contracts until such point as they can demonstrate that they will go under. This prevents businesses from reacting intuitively and quickly to the changing economic landscape, when reducing potentially burdensome staffing costs.
  3. The Government is invited to reconsider the imposition of this legal test, since existing consultation rights already provide an adequate balance in the bargaining position. The Government is also invited to consider a small employer exemption to the proposed legal test.

Making Work Pay: The application of zero hours contracts measures to agency workers

  1. London businesses are concerned at the potential unintended consequences of the proposal to remove zero-hour contracts. We condemn any abuse of such contracts however many employers use them responsibly and there is a clear demand for such contracts among certain segments of the workforce.
  2. While greater structure and guidance on their use is necessary, a blanket ban may undermine the flexibility that both London’s businesses and workers rely on. It is crucial to preserve this flexibility to benefit the unique needs of the capital’s dynamic economy.
  3. This would be damaging to the tourism sector, which is vital to the capital’s economy. London is the central hub for bringing tourism into the UK. These benefits are redistributed through the central government’s tax revenue and spending, but also through “London+” tourism where visitors begin in London and travel to other destinations in the UK. In 2019, before the COVID-19 pandemic, London was visited by nearly 22 million tourists – around 63% of the total number who visited England and over 53% of those who visited the UK.
  4. They spent nearly £16 billion in the capital, accounting for 63% of all tourism spending in England and 55 per cent of tourism spending in the UK. This supported one in seven of all jobs in London – 700,000 people – and nearly 12 per cent of the city’s economic output. 71 per cent of first-time holiday visitors to the UK come to the city.
  5. The soft power generated by millions of tourists a year visiting London, admiring its institutions, and returning to their home countries is immensely valuable. Due to the structural and seasonal nature of the hospitality sector, zero-hour contracts are key for the business model of the industry to be sustainable.
  6. It is a form of employment contract which is also welcomed by employees who can use the sector as a springboard for educational and career opportunities whilst balancing family life commitments. The complete removal of zero-hour contracts would be damaging to employees and harmful to the viability of a number of hospitality businesses who are already struggling post-COVID and as a result of increased taxation in the Budget.
  7. The social care sector also uses zero-hour contracts to help facilitate flexible and agile working. This is essential for effective care provision to be provided at short notice, especially out of normal working hours. The impact on care provision would need to be monitored to assess the impact on patients if the use of zero-hour contracts were removed.

Making Work Pay: Strengthening statutory sick pay Immediate access to Statutory Sick Pay

  1. According to the LCCI’s snap survey following the measures announced in the Employment Rights Bill, London business leaders are concerned about the impact changes to SSP will have on their operations. The Government’s proposed measure to allow immediate access to SSP was described as a very negative or negative view by half (50%) of businesses, with only 7% welcoming it as a positive step for their business operations. Removing the current three waiting days before SSP is payable may well lead to an increase in short-term absence and will invariably cost employers more, rewarding absence rather than making work pay, as is the Government’s stated aim.
  2. If the Government is intending on extending an employer’s liability for SSP, then one suggestion is that the Government provides financial assistance to cover the cost of this extended liability. This is because currently an employer cannot recoup SSP from the Government. Another option is for the three waiting days to attract a lesser rate than the current weekly cap of £116.75.
  3. The Government is invited to consider these proposals. Removal of the lower earnings limit for Statutory Sick Pay London firms we surveyed were less concerned about the removal of the lower earnings limit for SSP given most London-based employees earn significantly more than the current £123 a week minimum. 35% identified it as a negative move, suggesting it may impact SMEs and more seasonal sectors. When taken in context with the broader Employment Rights Bill, businesses surveyed by LCCI showed concern that the proposed changes would have serious knock-on effects on their operations. 38% predicted that they would have to freeze hiring in response to the changes, with 30% predicting a reduction in profits, and 33% forecasting lower pay increases for staff.
  4. Worryingly, nearly 1 in 5 business (17%) predicted that redundancies of staff may be directly needed to maintain business solvency should the measures announced in the Employment Rights Bill come into effect. This is separate from the impact on businesses from the Budget.

Making Work Pay: Creating a modern framework for industrial relations

  1. LCCI represents London businesses of all sizes, including major employers with heavily unionised workforces who are concerned about any measures that significantly increase the chances of disruptive industrial action, with enormous knock-on effects for imports, exports, and the tourism sector.
  2. LCCI members were asked for their views on the Government’s plans to expand the expiration date of the strike mandate from six months to twelve. Of 177 businesses of all sizes who answered, 32% were negative or very negative about the proposal, however that figure includes small businesses that are unlikely to have a unionised workforce. The 32% who are concerned directly correlates with the 32% of respondents with businesses of 50-249 employees or over 250 employees.

Conclusion

  1. The snap survey of members detailed above has shown that there are significant concerns from businesses, particularly small businesses who have weathered difficult operating conditions and are now faced with increased Employer National Insurance Contributions, an increased Minimum Wage, potential Inheritance Tax measures for family businesses, and a significant drop in Business Rates Relief next year. We are concerned that nearly 40% of businesses predict that due to the measures they will have to stop hiring new staff, which is counterintuitive to the aims and objectives of the Government to increase employment in the UK.
  2. In conclusion, we believe a landing zone can be found that meets the needs of the Government’s manifesto commitments and also ensures London and the UK can continue to create jobs, invest in innovation, and deliver economic growth that benefits us all.

 

 

Karim Fatehi MBE

Chief Executive

 

 

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