The Smith Institute’s director, Paul Hackett, wrote a joint piece with Sue Ferns (deputy director of Prospect) on the role the state should play in the world of work, drawing on our report Making work better.
While few would disagree with the need to regulate the world of work in order to protect workers and ensure fair competition, there is deep disagreement on the precise role that the state should play. Should government do more to protect and support employees or should businesses be left to their own devices? The view of many businesses is to ‘get the state off their back’. Most of the right agree, and argue that deregulation is the only road to higher employment and improved productivity. Light regulation is conflated with business success and free enterprise. Collective action by the state or employees is portrayed as anti-business and bureaucratic. This crude categorisation makes it hard for the centre-left to argue for improvements at work, although a weak state and ineffective regulation is one of the reasons why we under-perform as a nation and have so many low-paid and insecure jobs.
In every area of public policy it is hard to get the balance right between too much regulation and too little. The boundaries of government intervention are constantly changing, and what was once acceptable (smoking at work for example) is now no longer tolerable. But, business does not exist in a vacuum, and companies (even global ones) are part of the nation state and have corporate social responsibilities. It is a two way street. Companies create wealth. But it is the state which provides most of the education and training of staff, invests in our infrastructure, sets common standards and regulates competition. Companies of course pay tax, but so do workers and consumers. Without the state investing in tomorrow’s workforce we would not be able to prosper and pay our way in the world.
The state also has a big role to play in promoting employment and redistributing wealth through the tax credit and welfare system. It can ensure a more equal distribution of the rewards of growth by supporting independent organisations, like the trade unions, which offer a collective voice and bargaining clout to counter the power of employers. The success of post-war governments in reducing poverty and raising living standards was a result of redistribution by the state, but was also due to the existence of strong labour-market institutions, which ensured decent pay and conditions. The erosion of collective institutions and the death of the so-called social contract between government, unions and employers has disproportionately empowered employers and weakened the power of employees. The inevitable result over the past 20 years has been a huge widening of wage inequalities and a rise in in-work benefits as the state is forced to step in to subsidise low paying employers.
Few believe we can easily go back to the highly unionised world of the 1970s and re-invent the industrial relations system that characterised that period of near full employment. But if labour-market deregulation and union decline is at least partially responsible for the growth of income inequality and workplace dissatisfaction, then government needs to act. There is a compelling case for a new deal at work, which should be based on a social partnership between the unions, employees, employers and government. The Smith Institute’s report Making Work Better: An Agenda for Government recommends a package of solutions including a new power to promote collective bargaining, greater pay transparency, living wage contracts in public procurement, employee representation on the remuneration committees of large companies, a higher minimum wage, and a new settlement on public sector pay. 1
Rather than allowing a race to the bottom, government should do more to create a culture at work of consultation and engagement. One progressive step would be to reform the Information and Consultation of Employees (ICE) Regulations, notably by lowering the relatively high threshold to activate the legislation. ICE could then be used to increase (or introduce) collective voice in workplaces, provided it is resourced properly.
Government can also lead the way by improving the enforcement of employment regulations. It is a travesty to have good regulations on the statute book which are not complied with or enforced. Enforcement of the national minimum wage (NMW) is a case in point. The failure of HM Revenue & Customs (HMRC) to regulate the NMW effectively (on average a firm can expect a visit from HMRC inspectors once in every 250 years and expect to be prosecuted once in a million years) is not because the enforcement regime is centralised, but because it is drastically under-funded and lacks enough teeth to discourage those wishing to evade the law.
Some agencies are in fact just too small to be effective. The Employment Agency Standards Inspectorate, for example, which regulates employment agencies (employing 1.5 million temporary workers, many of them low paid) only has a dozen staff and an annual budget of just £532,000. Others could work a lot better if there was greater collaboration between employment regulators and other public bodies, including law enforcement agencies. Employers in breach of the NMW, for example, are also likely to be flouting trading standards, ignoring health and safety regulations or avoiding tax.
At present it is too easy for bad employers to evade their responsibilities in the knowledge that the state has under-invested in monitoring and enforcement at the same time as creating new barriers to accessing justice, for example by requiring upfront payment of employment tribunal fees. And it does not help that these responsibilities are widely dispersed.
Britain’s broken workplaces need fixing and we need to work together to create more good jobs in high performing workplaces to rebalance the economy and sustain fairer and stronger growth. It is all too evident that the market alone cannot deliver this. The state has to play its part, not just in providing better regulation but also in supporting civil society organisations that work to improve people’s working lives.
This article formed part of a full collection of essays, to view the publication please click here