Sean Houlston: The cost of red tape is measured in jobs

Sean Houlston was the Conservative Parliamentary Candidate in the Runcorn and Helsby 2025 By-election and Widnes and Halewood at the 2024 General Election and is a senior leader at the business body, the National Federation of Builders.

Britain’s economic debate often begins from the assumption that if only government regulated a little more, inspected a little more and intervened a little more, many of our economic challenges would begin to resolve themselves. The Employment Rights Act is perhaps the latest example of this thinking, representing one of the most significant expansions of employment regulation in recent decades.

The difficulty is that Britain does not currently suffer from a shortage of employment law.

What Britain suffers from is weak economic growth, sluggish productivity and declining business confidence.

The latest forecasts suggest the economy will grow by around one per cent this year, hardly the sort of performance associated with a thriving, dynamic economy. More worryingly, GDP contracted by 0.1 per cent in April after a modest period of growth, illustrating just how fragile Britain’s economic recovery remains.

At the same time, Britain continues to wrestle with a productivity problem that has persisted for two decades. Productivity growth, arguably the single most important driver of rising living standards, increased by just 0.4 per cent over the past year. Before the financial crisis, annual productivity growth averaged around two per cent. Today, Britain produces around 18 per cent less per hour worked than the United States.

These are not abstract economic statistics. They help explain why wages have struggled to rise as quickly as many would like, why public finances remain under pressure and why governments of all political colours find themselves searching for ways to stimulate growth.

Against that backdrop, policymakers should be asking a straightforward question: what would encourage employers to recruit more people, invest more money and expand more quickly?

Instead, much of the current debate appears focused on how many additional obligations can be placed upon those already doing so.

The Employment Rights Act introduces a wide-ranging package of reforms covering dismissal protection, statutory leave, sick pay, tribunal access, enforcement powers, guaranteed hours and trade union rights. Supporters will rightly argue that many of the individual measures are designed to strengthen protections for workers. Viewed in isolation, several of these reforms may appear entirely reasonable.

The problem is not necessarily any individual measure. The problem is the cumulative effect.

Businesses do not experience regulation as a series of neatly separated policy announcements. They experience it as a growing collection of obligations, compliance requirements, liabilities and administrative processes that must all be managed simultaneously while continuing to win work, serve customers and remain commercially viable.

The Government’s own impact assessment estimates that the legislation could impose around £5 billion of additional costs on businesses each year. For large corporations with extensive legal and human resources departments, such costs may be manageable. For small and medium-sized businesses, the firms that account for the overwhelming majority of private sector employment, the calculation is very different.

These are the companies that employ local people, support apprenticeships, train the next generation of skilled workers and create opportunities in communities across the country. They are also the companies most likely to think carefully before creating an additional role if the risks associated with employment continue to increase.

Employment legislation influences behaviour long before it influences outcomes.

Employers do not wait until a tribunal claim arrives before considering risk. They consider it when drafting budgets, reviewing business plans, deciding whether to take on an apprentice or assessing whether expansion is commercially sensible.

When regulation becomes more complex and employment becomes more expensive, businesses rarely stop hiring altogether. Instead, they become more cautious about who they hire, when they hire and whether they hire at all.

This should concern policymakers because Britain is already facing significant labour market challenges. Nearly one million young people are now classified as not being in education, employment or training. At a time when the country should be focused on bringing more people into productive work and developing the skills needed for future economic growth, increasing the costs and risks associated with recruitment seems an odd direction of travel.

The irony is that the people most likely to be affected are often those with the least experience. Established employees with proven track records generally remain attractive hires. It is the school leaver, the apprentice, the graduate and the individual attempting to re-enter the workforce who frequently represent the greatest perceived risk when employers become more cautious.

This matters because Britain’s productivity problem will not be solved in Whitehall.

Productivity rises when businesses invest in technology, equipment, innovation and people. Every pound spent navigating additional bureaucracy is a pound that cannot be invested elsewhere. Every hour spent managing compliance is an hour that cannot be spent growing a business. At a time when productivity growth remains stubbornly weak and economic growth forecasts remain subdued, policymakers should be looking for ways to encourage investment rather than regulate it further.

There is also a broader question about the direction of travel. Britain’s labour market has historically been successful because it balanced flexibility with protection. Workers enjoyed substantial rights while employers retained sufficient flexibility to respond to changing economic conditions and fluctuating demand. That balance was never perfect, but it broadly reflected the interests of both employees and employers.

Increasingly, however, policy appears to be moving in one direction. The assumption underpinning much modern employment legislation seems to be that employment relationships are primarily characterised by imbalance and exploitation, requiring ever greater intervention from the state. Yet the overwhelming majority of businesses are not seeking to exploit workers. They are seeking to win customers, deliver projects, remain profitable and create opportunities.

At a time when Britain faces sluggish growth, persistent productivity challenges and increasing international competition, the priority should be reducing barriers to investment, encouraging entrepreneurship and strengthening confidence among job creators. Instead, we appear determined to add further complexity to the very organisations upon which economic growth depends.

None of this is an argument against workers’ rights. Strong employment protections and economic success are entirely compatible. However, there is an important difference between sensible protections and excessive regulation, just as there is a difference between supporting workers and burdening employers.

Britain cannot regulate itself into prosperity any more than it can tax itself into competitiveness.

If we are serious about raising living standards, increasing productivity and creating opportunities for the next generation, then we must recognise a simple truth: businesses create jobs when they are confident about the future, and confidence rarely flourishes beneath an ever-growing mountain of red tape.