The left-wing case for a flexible labour market

Labour market flexibility, if harnessed properly, can be a force for individual and collective good, says Gillian Econopouly.

The economic tumult of the last several years has profoundly shaken the UK and its workforce. The public has witnessed bailouts of major banks, the disappearance of much-loved brands from the British high street and what feels like an unending string of financial collapses and high-level resignations in major organisations, from the media to professional services to public sector bodies like the police. 

Headlines aside, on an individual level, thousands of UK workers have faced redundancy, seen household incomes squeezed by several years of pay freezes or even cuts, or simply held onto jobs they would prefer to move on from but are too nervous to leave, given the economic climate.  

It is no wonder that parties on all sides of the debate are desperately seeking growth wherever it can be found.

But however grim the latest GDP figures, this troubling state of affairs does create an opportunity – and an imperative – to look closely at what we are already good at, and develop this further to the benefit of the entire country. 

And something we should recognise more explicitly as a strength is our flexibility. 

Although as a country we feel pretty battered and bruised in economic terms, the UK’s labour market has actually fared much better than most of our European counterparts in recent years. One reason is because we have a wider variety of ways for people to access work and remain active in the labour market, rather than becoming inactive and losing their skills and confidence in the process. 

There are also more options for employers to take people on and maintain those jobs. According to the CBI, some 83 per cent of employers believe the UK’s labour market flexibility helped stem job losses in the recession, and more than a third of employers used flexible options to keep their firms going. In fact, the OECD employment outlook also showed that UK employment fell much less than expected given the drop in GDP.

So there are advantages to flexibility, but the left has often been hesitant to discuss the subject candidly due to fears of creating a race to the bottom or the erosion of hard-won workers’ rights. These are important concerns and require careful consideration. But we must engage productively with the flexibility debate so it can be properly managed to yield benefits at both the individual and macro level. 

The left’s vision of a successful labour market has traditionally focused around employment – permanent jobs and a fixed workforce. And unless it occurs inside of an employment relationship, we have shied away from talking too much about flexibility, as it has sometimes become almost synonymous with insecurity or worse, the exploitation of vulnerable workers. There is a similar habit when it comes to people working for themselves. Often we associate the words "false" or "forced" with the term "self-employment", thus casting the entire concept into a negative light. 

What has been missing from the debate until now is a willingness to take apart the wider concept of flexibility: to consider its component parts and understand which of those offers the best combination of benefits for the individual and wider economic growth. We need a more nuanced understanding of what labour market flexibility can and does mean.

There is clearly a world of difference between the types of flexibility at different ends of the labour market. It makes little sense to compartmentalise highly-skilled freelancers who actively choose self-employment with low-skilled workers who are, for example, instructed to set up as "self-employed" yet do the same job as their full-time, employed and unionised colleagues. The two share only the same label – not the same labour market profile or characteristics. 

There is no room for exploitation of individuals in a modern, well-functioning UK labour market, through forced self-employment or any other means. And whilst there will unfortunately always be some companies who attempt to take advantage of the system, the answer to this is robust enforcement, not doing away with other types of flexibility. 

Labour market flexibility, if harnessed properly, can be a force for individual and collective good. We must use it to help those who want a permanent job to secure one; and understand that particularly among higher-skilled workers, self-employment can be a positive choice which helps businesses to grow. 

And we must recognise that whilst many do, it’s no longer every worker that wants a full-time, permanent job: the labour market has moved on, and so must we. 

This piece was originally published in the Fabians pamphlet New Forms of Work, available today.

Self-empolyment is more than just blogging in your pants and eating lots of biscuits. Photograph: Getty Images

Gillian Econopouly is the former Head of Policy at the Recruitment & Employment Confederation.

Photo: Getty Images
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Autumn Statement 2015: whatever you hear, don't forget - there is an alternative

The goverment's programme of cuts is a choice, not a certainty, says Jolyon Maugham.

Later today you will hear George Osborne say there is no alternative to his plan to slash a further £20bn from lean public services by 2020-21. He will also say that there is no alternative to £9bn cuts to tax credits, cuts that will hit the poorest hardest, cuts of thousands of pounds per annum to the incomes of millions of households.

But there is.

As I outlined here the Conservatives plan future tax cuts which benefit, disproportionately or exclusively, the wealthy. Suspending those future tax cuts for the wealthy would say, by 2020-21, £9.3bn per annum.

I also explained here that a mere 50 of our 1,156 tax reliefs cost us over £100bn per annum. We don't know how much the other 1,106 reliefs cost us - because Government doesn't monitor them. And we don't know what public benefit they deliver - because Government doesn't check.

What we do know, as I explained here, is that they disproportionately and regressively benefit the wealthy: an average of £190,400 per annum for the wealthiest.

And we know, too, that they include (amongst the more than 1,000 uncosted reliefs) the £1bn plus “Rights for Shares Scheme” - badged by the Chancellor as for workers but identified by a leading law firm as designed for the wealthiest.

Simply by asking a question that the Chancellor chooses to ignore - do these 1,156 reliefs deliver value for money - it is entirely possible that £10bn or more extra in taxes could be collected without any loss of  public benefit

To this £19bn, we might add the indiscriminate provision - both direct and indirect - of public money to wealthy pensioners.

Those above basic state pension age enjoy a tax subsidy of up to 12% on earned income.

Moreover, this Office for National Statistics data (see Table 18) reveals that the 10% of wealthiest retired households - some 714,000 households - have gross pre-tax and pre-benefit private income of on average £43,983. Yet still they enjoy average cash benefits from government of £11,500 per annum.

Means testing benefits to exclude that top 10 per cent of retired households would save £8.2bn per annum. And why, you might wonder aloud, should means testing be thought by the government appropriate for the working age population, yet a heresy for retired households?

Add in abolition of that unprincipled tax subsidy and you'll save even more. 

So there are alternatives. Clear alternatives. Good alternatives. Alternatives that enable those with the broadest shoulders to bear some share of the pain. Don't allow yourself to be persuaded otherwise.

Jolyon Maugham is a barrister who advised Ed Miliband on tax policy. He blogs at Waiting for Tax, and writes for the NS on tax and legal issues.