UK companies concerned about tougher employment regulation

British businesses are worried that greater protections for employees planned by the newly elected Labour government will make it more risky to hire new staff, according to the Confederation of British Industry (CBI).

Labour pledged in its election campaign to require employers to offer all staff parental leave, guaranteed minimum hours, sick pay and protection from unfair dismissal. The government is now preparing specific legislative proposals.

Under current law, staff employed for less than two years can be dismissed without an employer needing to prove misconduct or poor performance.

The CBI said an annual survey of employers, conducted with recruitment agency Pertemps, showed widespread concern among smaller businesses that it would become hard to sack new workers who did not perform well.

“While the government has said that businesses can use probation periods, the possibility of decisions at the end of probation being challenged at employment tribunal has 75 per cent of respondents saying they’d be more cautious about taking on new staff,” CBI work and skills director Matthew Percival said.

The CBI said 62 per cent of employers expected Britain to become a worse place to invest and do business over the next five years, driven by a 6 percentage point rise since last year in those expecting things to become “much worse”.

Employment regulation was a problem for 39 per cent of employers at present, but 58 per cent expected it to become a problem over the next five years, according to the survey of 152 businesses, two thirds of them small or medium-sized.

Britain’s unemployment rate is low by historic standards at 4.1 per cent, but the Labour Party has criticised the previous Conservative government for allowing labour force participation to fall from record pre-pandemic levels.

Labour wants to raise the labour force participation rate to a record 80 per cent of the working-age population from 78.1 per cent. Before the pandemic, the rate peaked at 79.5 per cent.