Coalition right to help job-creators

Allister Heath
VINCE Cable is back – and seems determined to shake off his reputation as the anti-business secretary. He wants to encourage firms to take on more workers by making it easier for them to sack underperforming staff. The number of cases reaching employment tribunals will be cut by automatically lodging all cases with Acas, the arbitration service. Tribunals may cease to be free: the introduction of fees, Cable believes, would discourage frivolous cases. Employers will no longer have to turn up in person at tribunals, and employees won’t be able to sue for unfair dismissal until they’ve been in a job for two years (up from one). Not a revolution – but the changes will be welcomed in boardrooms across the land. Tribunal claims hit a record 236,000 last year, a rise of 56 per cent on 2009, with firms having to spend almost £4,000 on average defending themselves, even when they were in the right.

Many workers, of course, won’t like any of this, believing the reforms will allow bosses to exploit them. That would be an understandable yet short-sighted reaction. Hundreds of thousands of firms now live in such fear that they will end up being taken to the cleaners – and forced into expensive settlements regardless of the merits of any case – that they increasingly think twice before hiring anybody. Such a situation breeds distrust. It doesn’t help anybody.

More relaxed employers will mean more job offers – especially full-time, proper staff positions – safe in the knowledge that the costs of getting it wrong won’t be crippling. This will mean greater opportunities for everybody, especially the young. There is plenty of academic evidence from all over the world that well-intentioned rules that make it too hard for employers to fire under-performing staff always backfire, reducing employment levels over time. In a modern society, an employee’s best protection is the availability of as many alternative job options as possible.

It is good news that the coalition is now turning to supply-side reforms to boost growth. In that spirit, Cable ought to take another look at the speech made earlier this week by the CBI’s Sir Richard Lambert. Crucially, Lambert argues, governments should not attempt to pick winners. Its policy to favour some sectors won’t work either. The National Endowment for Science, Technology and the Arts found that high-growth firms are almost equally present in the “high-tech” and “low-tech” sectors. Just six per cent of UK businesses with the highest growth rates generated half the new jobs created by existing businesses between 2002 and 2008. Experian found that looking at sectors is one of the least useful predictors of whether a company will turn out to be a winner. It too emphasises that fewer than one in ten small firms generate a hugely disproportionate share of the new jobs.

Job-creating firms are not generally fresh start-ups. They tend to have been around a few years – but companies that are much more than 20 years old are not likely to start taking on lots of new people. They will be highly innovative and run by driven managers and entrepreneurs – but as Lambert points out, job creators are just as likely to be world-class innovators in the brick making industry as in high tech biosciences. It is these firms that the coalition must seek to liberate from the dead hand of bureaucracy. Today’s step is welcome; more is now needed.
Follow me on twitter: @allisterheath