Will Vince’s red tape review be a paper tiger?

The new regulation that employer organisations most dislike are the new rules that will provide some protection for agency workers – but the Coalition lacks the scope to do this.

All new governments promise reviews of red-tape and excessive regulation; many business leaders are convinced that UK businesses suffer a uniquely heavy burden of regulation. Business secretary Vince Cable has announced a new regulation star chamber and has echoed Conservative enthusiasm for the nudge approach of Richard Thaler as an alternative to prescriptive regulation. But he has probably raised expectations that cannot be met.

As the Financial Times reports:

“The lion’s share of the cost of the impending regulation, an estimated £12.7bn a year from October 2012, relates to the plans to require employers automatically to enroll employees into a new personal pension account.

“The coalition government has already announced a review of these plans.”

The £12 billion is, however, not the cost of the regulation itself, but almost entirely the cost to employers of making new pension contributions. Lobbyists against regulation often confuse the two deliberately, even though this undermines much of their own argument. The national minimum wage for example is relatively straightforward and unbureaucratic, yet this does not stop employer lobbyists claiming their wage bill to be red tape.

Yet just as the national minimum wage has all-party support, so does auto-enrolment into pension schemes. This was a key recommendation of Lord Turner’s pensions commission, and has been accepted across the political spectrum and by most employer organisations, if a little reluctantly by some. The need is obvious: in 2000, 55 per cent of private sector workers were not members of an employer backed pension scheme. This had risen to 63 per cent by 2008 – almost two-thirds.

Indeed auto-enrolment is probably the best example of “nudge” policy in the UK. While some, including unions, argued for compulsion, the Pensions Commission urged auto-enrolment as more likely to win consensus support. With auto-enrolment employees are nudged by being automatically signed up for a workplace pension, but have the option to opt-out.

The new regulation that employer organisations most dislike are the new rules that will provide some protection for agency workers – but the coalition does not have a great deal of scope to change these as they are a European requirement.

While before the elections the Conservatives said they wanted to opt-out of European social protection rules, David Cameron was probably grateful for the opportunity provided by the coalition agreement to abandon this pledge as it was unachievable. Such an opt-out would require a Treaty change requiring unanimity among EU member states, not to mention an Irish referendum.

New Labour also opposed European rules to protect agency workers for many years. But campaigning by unions and Labour MPs and the difficulty of maintaining a blocking minority led them to broker a social partner deal between the CBI and TUC that broke the European deadlock at the price of weaker protection in the UK.

As the EEF’s David Yeandle writes in the FT report any attempt to weaken the rules further might well provoke the withdrawal of unions from the social partnership agreement meaning the UK would then have to adopt full European protection for agency workers. While unions, consumer groups and environmentalists should be braced for at least some reverses, the scope for the new government to make the big changes for which employer lobbyists call is more limited than they would like.

3 Responses to “Will Vince’s red tape review be a paper tiger?”

  1. Nigel Stanley

    RT my new post @leftfootfwd: Will Vince's red tape review be a paper tiger?: http://bit.ly/clJMxA

  2. Vince and red-tape | ToUChstone blog: A public policy blog from the TUC

    […] have a guest post at Left Foot Forwards on Vince Cable’s deregulation […]

Comments are closed.