Changes to the Employment Rights Bill are welcome – but even the diluted legislation will cause a significant hit to economic growth

New calculations from the non-partisan Growth Commission today reveal that despite a concession from the Government that will water down some aspects of its Employment Rights Bill, the legislation is still set to cause a significant hit to the British economy.

The impact will likely represent a £23 billion GDP hit to the UK economy over a five-year period from application of the law.

The Commission’s earlier modelling of the Bill as originally drafted found in October that, within ten years, GDP per capita would be between 1.4% and 2.8% lower as a result of the legislation being implemented in full – a loss of GDP of between £38 billion and £76 billion and a loss of GDP per person of between £554 and £1,108.

In recent days the Government has conceded that it will increase the qualifying period for unfair dismissal rights from one day to six months, but a range of other new rights will remain enshrined in the legislation relating to such matters as Statutory Sick Pay and rights to parental leave. In addition, the minimum wage is also increasing.

The Growth Commission has again used its Anti-Competitive Market Distortions Model to quantify the likely impact of the measures and we find the following:

The Commission’s original calculations were as follows:

Shanker Singham, Chairman of the Growth Commission, said:

“The concession on day one rights announced last week is welcome, and since the hiring and firing elements of labour market flexibility have very large GDP per capita impacts, it does lower the overall damage the Employment Rights Bill does to the economy. However, it should be noted that the other elements of the Bill that contribute to GDP per capita losses remain in place.

“Day one application of unfair dismissal would have been a major contributor to our initial calculation of a GDP per capita reduction of 1.4 to 2.8%. While our new projection of a -0.84% hit to GDP takes the Government’s U-turn into account, substantially all the other elements of the Bill remain in place, alongside the increases to the minimum wage.

“The public should be in no doubt that the Employment Rights Bill will still cause significant harm to the UK’s economic prospects.”