Mel Stride MP: To provide a shot in the arm for small business, the Coalition should review parental leave benefits
Mel Stride is the Member of Parliament for Central Devon, founder of the Deep Blue group, and an entrepreneur.
Along with its headline grabbing decision to look into the practicalities of a General Strike over public sector pay and conditions, a key message from last week’s TUC conference is that the union movement is especially determined to confront the Government over labour market reform. Departing General Secretary, Brendan Barber, dismissed planned Government measures as nothing more than "making it easier for bad employers to get away with misconduct" and asserted that easing labour regulations "will not create a single new job". His views are shared widely across the trade union movement and the reform of employment legislation is likely to occupy a key area in the battleground between unions and government over the coming months.
The line adopted by the TUC on supply-side reform is to misunderstand both the severity of our current economic challenges and the importance of enterprise and business in helping us to come through them. To propel ourselves firmly out of recession it will be increasingly important to leverage enterprise and to continue to press ever harder in our support for business. The Government has already done a great deal. The Chancellor’s progressive step-down in corporation tax rates and the recently announced reforms to employment tribunals are welcome examples of bold and positive action. And John Hayes in particular leaves a legacy of real success through his boosting of high quality apprenticeships – an achievement that will in turn inject skills and growth into the veins of our economy for many years to come.
As Conservatives we should also be proud of what we have achieved in the past and equally, we should learn from it. The Thatcher era supply-side reforms are still of huge importance today. Their potency can, perhaps, be usefully viewed through the prism of the great macroeconomic conundrum of the moment – the apparent contradiction between falling unemployment/growing employment on the one hand and economic contraction on the other. There are probably a number of explanations for this. It may be that the GDP figures have been underestimated over the last three quarters (as with the 1990/91 recession where the estimated drop in national output was reduced a few years later by over 40%). It is certainly the case that increased part-time working is a factor and that the excellent efforts of Iain Duncan Smith and Chris Grayling have helped to get more people into work. But our success on the employment front also owes much to the more flexible labour markets that were ushered in by the radical supply-side reforms of the 1980s. In that sense a significant element of the government’s great achievement of creating a million private sector jobs today are a tribute to what Maggie had the courage to do thirty years ago. Up and down the country there are many thousands in work today who unknowingly owe their livelihood to her.
Whilst the potency of supply-side flexibility is clear, the left including the TUC will no doubt argue that if our labour markets are already flexible enough to deliver jobs in one of the worst recessions in our history, then surely there is little need for further radical change. I disagree profoundly with this. We live in a rapidly changing and increasingly internationally competitive world in which today’s supply-side flexibility can quickly become tomorrow’s millstone: an affect accelerated by the rapid growth in the competition provided by emerging economies. Increasingly in the global marketplace of the future, we will find ourselves bumping up against the likes of China and India rather than, say, Germany and France.
Effective supply-side reforms promote businesses in two ways – firstly they free them up to get on with generating profits and jobs but, secondly, they powerfully promote the message that the government is completely committed to business and entrepreneurship. This in turn has a knock-on effect on business confidence – something that is especially vital at the current time. We hear much about the banks being unwilling to lend but we should not forget that UK PLC is itself sitting on £750 billion in cash without the confidence to invest it. Radical messaging to the private business sector on supply-side reform will go some way to ensuring that this money is levered out and put to work creating wealth and jobs. So what measures should we press on?
I believe that we should take seriously calls from the CBI, the FSB and other respected business organisations to take another look at significantly reducing the burdens to business of employment-protected leave of absence. These employee rights vary significantly from country to country and typically include Maternity and Paternity leave (paid time off for mothers and fathers around and beyond childbirth), Parental leave (typically unpaid supplementary time off beyond the period of maternity leave and sometimes available to either parent) and Home Care leave (leave to care for children up to age 3). To be clear, I am not arguing against the principle of these kinds of employee rights – government and businesses should provide help to mothers around and beyond the time of birth and I also recognise that employment-protected leave has a significant role to play in supporting female participation within the workforce1. But a key question here is where exactly should the balance be struck between the extent of these rights and the level of the burden they place upon businesses?
Compared with our international competitors, Britain has a relatively generous/onerous employment-protection environment as can be seen from Table A (below) which was compiled for me last year by the House of Commons Library.
In Britain, an employee can require their employer to provide up to 52 weeks of statutory maternity leave and to keep their job open for their potential return. If the job they held prior to their leave is not available a year later then a similar job must be provided and with the same salary, terms and conditions. During any period of absence the employer must make a contribution to the employee’s statutory maternity pay, continue with the employee’s pension contributions in full and potentially also continue to provide benefits such as the use of a company car, mobile phone, club memberships etc. Incentive arrangements (such as equity option schemes) will also typically remain in place and benefits that might follow from them will still be available even though the employee may have been away for a year or more and therefore perhaps have contributed little to the successes upon which the rewards from the scheme are based.
Holiday entitlement continues to accrue during leave and can then be added to the leave period prior to any return to work and is a period of further time off during which the employee is fully salaried entirely at the expense of the business. The father or partner of the mother may also be able to take up to 28 weeks leave from their employment prior to the child’s first birthday.
These rights accompany each and every pregnancy and so it is not uncommon for an employee to take multiple breaks from work in relatively close proximity and for up to a year on each occasion. Under these circumstances not only do employers have to struggle with filling jobs on a temporary basis for lengthy periods but they also often face considerable uncertainty as to how long the actual period of absence will be with the mother being able to delay her decision on the date she will return to work until well into the period of leave. In some instances, employers will keep a job open (with temporary staff cover) only to find that after over a year’s absence the mother decides not to return after all. The temporary arrangement then has to be unwound and a new permanent placement recruited.
The impact of these requirements on small businesses in particular can be profound. It is hard to see how most micro-businesses (those with 10 staff or less) can grow effectively where a key director or senior manager is away from work under these circumstances. These situations can also cause resentment amongst existing staff who are often called upon to work additional hours and change their work arrangements to compensate for the absent employee. It is also unfortunately the case that some employers discriminate against women of childbearing age during the recruitment process – a highly undesirable and unintended consequence of employment legislation, the intent of which is to encourage exactly the opposite – i.e. increased female participation in the workforce.
The politics around this issue are tricky, with worldwide experience showing that changes in this area of employment law tend to ratchet in one direction alone – towards greater generosity to employees. Indeed those countries such as Austria, the Czech Republic and Poland who were the first in on these labour market reforms (in the 60s and 70s), have now incrementally moved to providing amongst the most generous arrangements in the world. There have though been some notable examples of countries rowing back in this area in recent years, including Germany. If we want to provide a massive shot in the arm for British business and entrepreneurship I would hope that we could seriously consider following their example with at least a close look at relaxations in protected-employment legislation for smaller businesses. The result will be business growth, more jobs and stronger public finances – the very base upon which we can better support the kind of society in which mothers, fathers, families and future generations will flourish.
Table A
House of Commons Library analysis (pdf).
1 The role that Maternity leave has in improving the engagement of women with the workforce is important. The evidence suggests that by holding positions open and making businesses more family-friendly, women are more likely to enter the world of work and to come back into employment after having children than would be the case where no such benefits are offered. There is, however, some evidence that as the offering becomes more generous, the likelihood of a mother with young children returning to work diminishes. Table B below (extracted from "Doing better for families - OECD 2011") shows, across a number of countries, the relationship between the employment rates for mothers with young children and the duration of the maternity leave available. It suggests, at least across the range of employment-protected rights provided by the countries featured, that female workplace re-engagement for women with young children is actually stronger where maternity rights are less generous to employees and less onerous on employers.
Table B
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