Labour’s employment reforms will impose a £5 billion stealth tax on British workers, according to a report published by an economics think tank.
The Government is not protecting workers – it is harming them, says the Institute of Economic affairs, as companies offer smaller wage rises to claw back any legislative gains that workers are given.
As the Employment Rights Bill returns to parliament on Monday, the IEA warns that employment mandates, sold as helping workers, really function like hidden taxes that reduce their wages over time.
Professor J R Shackleton, the report’s author, argues that politicians exploit the public’s misunderstanding about who really pays for employment rights.
He says they often only benefit certain groups, but the costs are passed back to all employees through lower wage increases than they would otherwise receive.
The Bill’s measures – including day-one unfair dismissal rights, restrictions on zero-hours contracts, and enhanced union powers – will also make employers more risk-averse in hiring decisions, he says, putting a brake on the growth the government seeks to achieve.
The report, Liberating the Labour Market, reveals how Britain’s labour market freedom score has already plummeted from 81% on the Heritage Foundation’s Economic Freedom Index 20 years ago to just 63% today, undermining what was previously a key competitive advantage for the UK economy.
Prof Shackleton, editorial and research fellow at the IEA, warns that these new union powers could trigger a return to 1970s-style industrial militancy. This might allow unions to “put the public through the wringer” and “extort more pay from the government – which means, of course, the taxpayer.”
The report suggests Britain could eventually have to follow international examples by banning strikes in essential services. Germany bans civil servants, university staff and many teachers from striking, while the US prohibits all federal employees from taking industrial action.
It also suggests scrapping the apprenticeship levy system – which has reduced rather than increased apprenticeship numbers since 2017. It wants a review of occupational licensing, currently covering 20% of jobs which, it says, often reflect successful lobbying rather than genuine public protection needs.
Other reforms should be made to the “complex” tribunal system and the funding of university funding so that it is linked graduate employability, says the report.
“Politicians love to announce new employment ‘rights’ because they think employers pay the bill – but that’s an illusion,” says Prof Shackleton.
“Every mandate, from parental leave to holiday entitlements, acts like a stealth tax that gets passed back to workers through smaller pay rises than they would otherwise receive. The only difference is that no money is raised for the Exchequer.
“The Employment Rights Bill will make this much worse, imposing billions in hidden costs that workers will ultimately bear themselves.
“The Government is not protecting workers – it is harming them and undermining its own alleged number one priority to boost economic growth.”
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