Select Committee on Work and Pensions Appendices to the Minutes of Evidence


Letter to the Committee from the Institute of Directors (ES 03)

  Dear Sir/Madam

  Thank you for giving the Institute of Directors (IoD) the opportunity to contribute to your inquiry into the "impact of economic slowdown on the Government's employment strategy and to assess the employment assistance available to those facing employment". The IoD is a non party-political organisation with some 68,000 members world-wide, 55,000 in the UK, whose aim is to help directors to fulfil their leadership responsibilities in creating wealth for the benefit of business and society as a whole.

  1. May I say from the outset that we have not undertaken any research on the Job Transition Service or Jobcentre Plus and the last (and only) survey on the New Deal was undertaken in 1999. The results of this survey were written up in a research paper entitled "The New Deal one year on"[1] and I enclose a copy for the Committee's interest. The main findings included, firstly, that our members were more willing to take on 18-24 year-olds than the (older) long-term unemployed; secondly, there was reluctance to take on staff who were not "work ready", thirdly, there was some scepticism about whether the New Deal would have positive implications for their companies or the economy at large, and, finally, the impact on our membership had been quite limited. Because of the final finding (and other pressures on policy unit staff), and some scepticism about the New Deal's efficacy, we have not repeated the exercise. This should not be read as IoD indifference to people who lack employability skills—not at all. And we will continue to press hard for improvement in the nation's basic skills. But we have concentrated our limited resources in this area on supporting the DfES's initiatives within schools. Whilst we welcome the improvements in primary school standards, there is clearly much more to be done—especially at secondary school level.

  2. Our second point is that, whilst it is true that the economy slowed down last year and there was a real risk of global recession, some "green shoots" now appear to be emerging. The US economy staged a surprising "recovery" in the fourth quarter of last year (with annualised GDP growth of more than 1½ per cent) and, even though we believe GDP growth will be a relatively modest 1½ to 2 per cent this year this will undoubtedly help the world economy in general and the UK's trade in particular. (The US is the UK's largest single trading partner by a sizeable margin.) The Eurozone economies are also looking more optimistic—although we have major concerns about the economic health and dynamism of Germany. Germany is by far the biggest of the Eurozone economies, accounting for nearly 2/3 of total GDP, but it grew by less than 1 per cent last year and is not expected to do much better this year. It is an economy weighed down by regulation, the costs of reunification and the straightjacket of the euro. Germany's sluggishness will inevitably act as a restraint on global recovery. Finally, Japan (the "third pillar" of the world economy) still seems to be mired in recession with a banking system that is effectively bankrupt.

  3. Turning to the British economy, we are fairly confident that growth will pick up this year (after last year's poor fourth quarter figure) and should achieve growth of around 2 per cent (after just under 2¼ per cent in 2001). Under these circumstances we do not expect a deteriorating labour market. Indeed unemployment actually fell back in January and February (after picking up modestly in 2001Q1) and the claimant count unemployment rate was just over 3 per cent in February (just over 5 per cent on the ILO definition). If, therefore, our economic expectations are fulfilled then the Government should not be facing a major increase in unemployment in the short-term.

  4. But this isn't to say "that all in the garden is lovely". We have expressed our concerns many times over about the increasing labour market regulations (whether from Brussels or Whitehall) and we have written copiously on the subject. We shall spare the Committee the full panoply of our writings on this issue, but we do include two of our papers that are relevant to the subject. The first paper is "The red tape menace"[2] which is the write-up of a very recent IoD member survey. 75 per cent of the respondents to the survey said that the labour market regulatory burden was "much heavier" since 1997 and 18% said that the burden was "heavier". (It was also clear that many members believed that the build-up of employment red tape was impeding growth—and hence employment creation.) The second, "The work-life balance`and all that—the re-regulation of the labour market",[3] includes economic analysis which shows that there is a strong correlation between lightness of employment regulation and job creation (chapter 5). The heavily regulated labour markets and badly functioning labour markets in, for example, Germany, France and Italy, should act as a warning for zealous labour market "fairness" regulators. Unemployment in these countries is around 9-10 per cent. We would also like to add that changes to the regulatory regime impact with a lag. The UK's experience of the 1980s is convincing evidence of this. In conclusion, therefore, we warn that the unquestionably heavier regulatory burden imposed on business since 1997 may not seem to be having a significantly negative impact on business activity and job creation now—but we fear that it will.

  5. Our message to Government is this. If full employment is your goal, you need to do three things. Firstly, ensure that the vast majority of children leave school with adequate basic literacy and numeracy skills; secondly, minimise the employment regulations burden and, thirdly, maintain economic stability so businesses will have the confidence to invest and grow. This is not rocket science.

Yours sincerely,

Ruth Lea

Head of the Policy Unit

11 April 2002

1   Wilson, Richard: "The New Deal one year on" (IoD, 1999). Back

2   Baron, Richard: "The red tape menace" (IoD, 2002). Back

3   Lea, Ruth: "The Work-life balance . . . and all that. The re-regulation of the labour market" (IoD, 2001). Back

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