General Matters

Mel Stride Excerpts

Tuesday 18th September 2012 Commons Chamber

[Mel Stride (Central Devon) (Con)]

I rise to address the issue of increasing the flexibility of labour markets, and the effect that it can have on small business growth. In doing so, I pay tribute to the many actions this Government have taken to encourage businesses, particularly small businesses. The Chancellor of the Exchequer’s huge achievement in maintaining our triple A credit rating status is worthy of note, thus keeping interest rates low, which has assisted businesses up and down the country to invest. Also important is the continuing reduction in corporation tax levels, which I think most businesses feel is most welcome.

When it comes to labour market flexibility, and particularly supply-side flexibility, we might usefully view it through the prism of one of the great macro-economic conundrums this country faces: on the one hand, we have reductions in unemployment and increases in employment, yet on the other hand, we have the apparently contradictory information that growth has been negative over the last three quarters. Some of that could be due to the fact that gross domestic product has been underestimated over that time, which would be consistent with the history of these circumstances when recessions are typically estimated at the time to be more severe than they are subsequently assessed as being. That certainly happened in 1990-91—three years later, economists decided that the recession had been 40% less deep than it had been estimated at that particular time.

Declining unemployment is probably due to increases in part-time employment, but also to the extremely positive action taken by Ministers and the Secretary of State at the Department for Work and Pensions, which has encouraged people off welfare and into work. There is one other reason why the employment figures might appear to trump the growth figures—our extremely flexible labour markets, which are due, in turn, to the supply-side flexibility introduced in the 1980s. Ironically, there are probably many thousands of people up and down this country who owe their current livelihood to the courage Margaret Thatcher had in the 1980s to improve the supply side of our economy.

Why, then, as I would argue, do we need to go further in reducing supply-side rigidities if our labour markets are so flexible as they stand? The reason is that we are competing in an internationally competitive global marketplace in which our future competitors are not going to be simply the likes of France and Germany, as we will increasingly be bumping shoulders with the likes of China and India, which have extremely flexible labour markets indeed.

If we are to improve labour market flexibility, it will have at least two effects on business. One is that it will make it easier for them to transact business; the second is that it will send a very positive message to businesses that the Government are very serious about supporting entrepreneurship and business. That will be particularly important, given that this country currently suffers from a lack of business confidence. UK plc is sitting on some £750 billion-worth of cash, which is not being released to invest in jobs and growth simply because it lacks the confidence to do so.

I think we should take some further action, and I strongly believe in the comments made by the CBI and the Federation of Small Businesses to the effect that we should look at the area of employment-protected leave of absence or maternity and paternity leave, and particularly at how it affects small businesses and micro-businesses.

Let me clarify, first, that I strongly believe in and adhere to the principle of employment rights. It is quite right and proper in a civilised society that companies and Governments should be helpful to women at their time of child birth and beyond. It is also an important tool of policy for ensuring that we increase and improve the engagement of women within the work force. That is my starting point, but I believe that our balance has become out of balance: it is now too much in favour of rights and there is too little emphasis on the onerous provisions that apply to businesses.

Last year, I asked the Library to prepare a comparative grid to show the levels of various maternity rights across various countries in the world. It is certainly the case that we are not the most generous, but we are among the most generous. In Australia, for example, the entitlement is to 18 weeks; in Greece, it is to 17 weeks; in India, it is 12 weeks—but in the United Kingdom, it is 52 weeks. Let us consider the problem that that may cause an employer in the United Kingdom, particularly a small employer whose business consists of, say, between six and 12 people. A key member of staff, such as a senior manager or director, is able to be absent from the workplace for more than a year—over 52 weeks. The employer must then make a contribution to maternity pay, and, in some circumstances, continue to provide a company car and a mobile telephone and pay for any membership of clubs or organisations that may have been granted as a work-related benefit.

Moreover, the absent employee will have been accruing holiday leave, and it is entirely possible that, at the end of the 52 weeks, the business will have to pay in full for the employee to be absent for a further month, or even two months. Any options agreements or share incentive schemes will continue as normal, although the employee may not be present to make any contribution to the success of the business. The employer will also continue to pay in full any pension contributions that have previously applied.

Huge uncertainty is caused by the fact that employees do not have to inform their employers whether they will be returning to the workplace until the period of absence is well under way. It is quite conceivable that, in a company with six to 12 employees, a senior individual who has been absent from the workplace will not inform the employer until the 11th hour—after an absence of at least a year—that he or she will not be coming back.

[Fiona Bruce (Congleton) (Con)]

We should also bear it in mind that replacing expertise does not involve like-for-like funding. Acquiring a locum can be very expensive for a small business, and as a result the owner of the business often ends up doing two jobs throughout the period of the employee’s absence.

[Mel Stride]

That is an extremely important point. One of the problems with excessively onerous employment rights of this nature is that they build up a fair amount of resentment among existing members of the work force who are often expected to work longer hours or, indeed, to change the pattern of their work in order to accommodate the person who is absent.

In no way do I wish to attack the notion of rights of this kind. I think that they are very important, for the reasons that I have given, but I hope that the Government will look closely at the balance in how they operate, particularly in the case of micro-businesses employing 10 people or fewer.