Lead story: Fire at will misses the point

Posted on 31 May 2012

In the circus that ensued from its premature publication, the true purpose of the Beecroft report on employment law will have been lost on many employers. Parking the political mud-slinging, Will Stirling asks whether the landmark report is likely to fulfill its aim: promoting growth.

It took just a few hours for a serious piece of legislation designed to benefit business to descend into political farce.

Soon after The Sunday Telegraph broke details of the Beecroft report on employment law on May 20, the most contentious of its 17 proposals – no-fault dismissal, giving employers the right to sack people on the spot – morphed into a coalition-dividing hot potato, pitting right wing advocates of Adrian Beecroft’s reforms against left wing sympathisers of employee rights.

Stuck in the middle, the business secretary Vince Cable tried to balance support for “the many sensible proposals” in the report while condemning the sacking plans as “complete nonsense”.

While visiting the newly reopened SSI UK steelworks in Redcar, Dr Cable claimed that Britain’s workforce was already highly flexible, personified by the workers around him, whose moderation had assisted the return of steelmaking to Teesside. He said such reform would only scare workers.

But as the story unraveled and the political point scoring rose, businessmen and women rather forgot what the original report was meant for. Was it a bill or a consultation? Who was Beechcroft (sic. sorry, Beecroft) anyway?

“You should be actively encouraging employers to take the risks of employing more staff, by reducing those risks to a more manageable level.” Engineering company owner Iain Maxted in a letter to the Business Secretary

The Beecroft backstory

Originally dated for October 2011 and now in its umpteenth iteration, venture capitalist Adrian Beecroft’s report into employment law is a comprehensive set of proposals on UK labour law reforms, intended to promote business growth. Its intent is to reduce red tape related fears for managers and owners looking to recruit.

Shadow Business Secretary Chuka Umanna asked the coalition government for a preview of the report in advance of publication, a privilege under the Freedom of Information Act. The coalition refused, Labour objected and in the ensuing furore the document – whether or not the final version – was leaked to The Sunday Telegraph newspaper and then published by BIS in haste when the cat was out of the bag.

No. 10 Downing Street was accused of doctoring the report to dilute the heaviest criticism of the Conservative party’s support for ‘family friendly’ policies like parental leave. Conservative was pitted against Liberal Democrat and then Labour, in a circus that hung on a single element of the report – the so-called ‘fire at will’, or no-fault dismissal, proposal.

Business calls for employment law reform

The story dominated the news for three days until the International Monetary Fund called for the UK to implement more quantitative easing and cut interest rates because growth was worryingly flat. A small irony when the raison d’etre of the Beecroft report was to assist growth.

But ex-employment lawyer Mr Umanna and other critics challenged this rationale. The UK already had the most flexible Labour market in Europe, he said, asserting that hanging hiring and firing rules was a “complete and utter distraction” from getting the UK out of recession.But is he right? Does relaxing employment law have any bearing on growth, or is it precisely what businessmen need to encourage recruitment, expand and reduce unemployment?

Andrea Rodney, Hone-All Precision

Andrea Rodney, Hone-All Precision, deep hole boring and drilling specialists

“I very much doubt whether the claim that these recommendations will help boost growth is accurate. To boost growth in the UK, what we need is an effective tax system that encourages investment in capital equipment, and the Government agencies to start providing the assistance they advertise by assisting and encouraging smaller companies to export”

Iain Maxted, managing director of Guardian Global Technologies, a manufacturer of oil and gas components, supports employment law reform. “For many businesses some of the recommendations in the Beecroft report cannot come soon enough.” The owner-manager of an SME employing 80 skilled people, Maxted is precisely the sort of businessman the Beecroft report targets.

“We desperately need a more flexible labour market in the UK,” he says. “Successive governments have brought in increasingly absurd and illconsidered legislation – the latest being shared parental leave – which make us less competitive in the world. I do not take a risk on employing additional staff precisely because it is so difficult to dismiss them if it does not work out.”

Scaring workers, or employers?

Critics say that no-fault dismissal is wrong. It scares workers off taking jobs as they have no employment protection. The extended point, espoused by Labour market economist and ex-member of the Monetary Policy Committee David Blanchflower, is that if people think they may lose their jobs, they will not consume. So no demand, and no growth.

Iain Maxted dismisses this. In a stinging letter to Dr Cable following Beecroft’s publication, he chastised the LibDem’s toning down of the problems of unfair dismissal and tribunal compensation faced by SMEs. His company had to make an alcohol-related dismissal in which he had no choice as an employer under criminal liability laws. Despite verbal notification, he omitted to put in writing that the employee had a right to appeal, and was told that automatic finding of unfair dismissal and damages would most likely be awarded to his company.

“Employment rights, the ease with which employers are taken to Employment Tribunals and the bias of legislation in favour of employees and against employers is a constant concern to every employer I know, and I meet many at various business events,” Bridgend-based Maxted told Dr Cable.

Behind the Beecroft bombast

In the ‘Beecroftgate’ furore, it’s easy to overlook the many constructive proposals in the report that business, trade associations and, quelle surprise, MPs from both sides of the Coalition agree on. Putting off compulsory pension fund contributions for example, and the reform of Employment Tribunals. Many of which were already in the works before the report scandal broke.

Roger Marsh, managing director, Rediweld Plastics and Rubber

Roger Marsh, managing director, Rediweld Plastics and Rubber

“I believe that the more flexibility employers have, the more likely they are to take on new staff. More often than not this will help the company grow, ensuring longer term security and providing that essential work experience that young people are finding so difficult to get”

Indeed scratch the surface and much of Beecroft already exists in some variant. Simon Fenton, an employment lawyer and partner at Thomas Eggar, points out there is already a cap on compensation payments for unfair dismissal, currently standing at £72,300, which is calculated by reference to the employee’s losses.

“We have no-fault dismissals during the first two-years of employment now,” he adds, “If you wish to dismiss an employee after that, there is nothing really stopping an employer doing so, but it will usually involve some form of pay-off – as is suggested by Beecroft anyway.

What Mr Fenton does see as a problem in Beecroft are his proposals for small company exemptions. “The proposal that employers with fewer than 10 employees should be exempt from unfair dismissal rules might make them less attractive to prospective employees. And will it reduce the likelihood of companies with 10 employees hiring the eleventh?”

Employers’ organisations including EEF, the CBI, the FSB and the Food and Drink Federation praised many of the report’s proposals. EEF’s head Terry Scuoler singled out the reform of Employment Tribunals and collective redundancy rules, and the need to minimise red tape around any extension of flexible working – though again these were all reforms being pursued by the Department for Business Innovation and Skills prior the Beecroftgate.

Simon Fenton, Thomas Eggar LLP

Simon Fenton, employment lawyer and partner, Thomas Eggar LLP

“We have no fault dismissals during the first two-years of someone’s employment now. If you wish to dismiss an employee after that, there is nothing currently really stopping an employer doing so, but it will usually involve some form of pay-off – as is suggested by Beecroft”


What difference does regulation make to growth?

Why did No. 10 commission Beecroft? To assist business growth.

But critics say that there isn’t a single shred of international evidence that says regulation is the UK economy’s problem.

Ex-MPC member David Blanchflower told the BBC that he sees no correlation whatsoever between regulation and employment. “In the UK we’ve seen incredibly flexible wages and hours. There is no evidence that regulation is a problem. The BIS 2011 survey itself said that just seven per cent of firms said regulation was a problem.”

In its last employment protection study in 2008, the Organisation for Economic Cooperation and Development showed the UK had the third lightestregulation among 10 developed countries, in front of Canada and the US. Turkey, the most regulated, had growth of nearly 8% in 2011.

Iain Maxted, Guardian Global Technologies

Iain Maxted, managing director, Guardian Global Technologies

“[To the Business Secretary] “You should be actively encouraging employers to take the risks of employing more staff, by reducing those risks to a more manageable level, rather than giving us incentives to absolutely minimise recruitment because of the risks relating to employment protection which each additional employee brings”

Andrea Rodney, managing director of Hone-All Precision, supports less red tape but doubts whether the Beecroft proposals will have any effect on growth. “What we need is an effective tax system that encourages investment in capital equipment and government agencies to start providing the assistance they advertise by assisting smaller companies to export,” she says.


So is Beecroft a panacea for growth or a smokescreen?

Some employers like Mr Maxted and many trade bodies feel strongly that less regulation is key to giving firms the confidence to recruit. Centre left politicians tend to see the British workforce as very flexible with no need for further deregulation, highlighting recent industry boosts – such as Vauxhall and SSI on Teesside – where workforce flexibility was crucial to the deal.

“I do not take a risk on employing additional staff precisely because it is so difficult to dismiss them if it does not work out.” – Ian Maxted, Guardian Global Technologies

In which areas will we see this legislation passed? The common consensus is that it will be the softer issues that go forward, issues where Lib Dems and Tories see less need for compromise. It is thought Lib Dems are more likely to move towards the Tories’ view on those proposals that effect small businesses.

Beecroft’s harder proposals are destined to divide businessmen, economists and politicians The bigger question in a depressed economy remains: is full implementation of Beecroft necessary or even relevant to effect growth?

Are you interested in learning about how other companies have flexed their workforce? Come to The Manufacturer’s ‘Flex for the Future’ conference on July 5-6 at the Birmingham Metropole. www.themanufacturer.com/eventsite/flex-for-thefuture- conference-2012