Business warns of recruitment jitters over UK employment reforms

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The Institute of Directors has warned that more businesses expect to reduce their headcount than increase it for the first time since the height of the Covid pandemic, in part because of the government’s new employment reforms. 

Alex Hall-Chen, principal policy adviser at the IoD business group, told a committee of MPs on Tuesday that the effects of the “making work pay” package of policies, along with tax rises announced in the Budget, were hitting employment. 

“A key fear for us is the cumulative impact of all the 28 reforms in this bill, coupled with everything else happening in the employment space so far . . . the measures make hiring someone riskier and more expensive for businesses,” she said. 

The IoD carried out a survey of 700 business leaders in August that found 57 per cent of respondents said the employment reforms would make them less likely to hire new staff.

“I would say the situation has actually worsened since then given recent announcements around employers NICS,” Hall-Chen told the employment rights bill committee. 

“We are seeing for the first time since September 2020 that more business leaders expect to reduce their headcount than increase it, and this bill is a key reason for that change,” she added.

As part of the “making work pay” reforms, ministers have introduced an employment rights bill, including 28 different workplace measures.

The policies, many of which will not kick in until 2026 or 2027, include day one protections for staff against unfair dismissal, restrictions on zero-hour contracts and a clampdown on employers using “fire and rehire” tactics.

Other policies in the package, such as the “right to disconnect”, which allows employees to opt out of work-related activities beyond office hours, have been put out to separate consultation. 

The government’s own impact assessment of the employment rights bill found it would add up to £5bn a year in costs to businesses across the UK. 

Hall-Chen said executives supported some elements of the bill, but added that employers were much less likely to “take a risk” when hiring a borderline candidate because of extra burdens contained in the “making work pay” reforms. 

Jane Gratton, deputy director for policy at the British Chambers of Commerce business group, said that businesses needed more engagement with the government over elements of the policy package. 

“The worry is that this legislation, in trying to address bad behaviour by a tiny minority of businesses. The cumulative impacts of all this and the cost of all of this will have a negative impact on the majority of very good businesses,” she said.

The overall effect and cost of this “will have a negative impact on the majority of very good businesses”, she added. “These are huge changes, and I think one concern is that they’ve been brought in at such pace.”

Matthew Percival, CBI future of work director, said it was not the case that strong employment rights were bad for business. But, he added, members had specific concerns on various fronts, including the removal of four waiting days before staff can receive statutory sick pay.

Justin Madders, employment rights minister, said other surveys had shown “very high levels” of support in the UK’s business community. “Up to three quarters of managers support the measures in the bill,” he said.