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Vince Cable calls for flexible workers to have the right to request a fixed contract

May 14, 2014 5:52 PM
Originally published by UK Liberal Democrats

Liberal Democrat Business Minister Vince Cable has today called for workers on zero hours contracts to have the right to request a fixed contract.

Speaking a Resolution Foundation event Vince said:

"Where I personally think we ought to be going is looking at the right to request a fixed contract, building on the model which we already have for flexible working. I think that is the area where we need to more forward and indeed I am looking at how we can best do that."


The full transcript of Vince's speech is below:

Thanks to Gavin and the Resolution Foundation.

Let me start off with what is unambiguously good news. That in the last quarter we had an increase in employment of 283,000. This is the largest of any quarter since records began. Spread across all categories. Continuation of a very power employment growth. We would argue that a lot of that is due to what we call a flexible labour market.

The question I want to pose is this: is it possible to have labour markets that are too flexible? Are we in that position now in the UK? If so, how do we maintain the advantages of flexibility - for workers and firms - while reducing the costs?

Let me start by putting this into context.

We have a strong and sustained, broad-based recovery in economic activity taking place, which is welcome - and impressive by the standards of many other developed countries. But the squeeze on living standards has been a topic of recurrent debate ever since the onset of the global financial crisis - in Prime Minister's Questions and in the local pub. And it deserves proper, sober discussion. The point of economic activity is to provide decent living standards.

In addressing this, we have to understand where we came from. The first point I must make is that the financial crisis had undeniable consequences as it unambiguously made our country poorer. The correct initial response was to shield people from its impact, temporarily, in order to maintain spending in the economy, and prevent the collapse of output and the recession getting worse. But sooner or later, lower national output was bound to cause a fall in living standards. National output fell by 7 percent in the wake of the crisis - and after a time lag living standards fell by a similar amount.

At the beginning of this government, the Office for Budget Responsibility forecast that that the situation would ease over the next few years. But instead of wages outpacing RPI inflation by 2 per cent, as they earlier forecast, they are now barely expected to keep pace.

Wages are, of course, not the same as take-home pay, which is influenced by taxes, deductions and in-work benefits. The impact of the Liberal Democrat policy of raising tax thresholds has cushioned the impact of falling real wages. But nonetheless, there is a barely remarked upon transformation in the basic shape of the recovery we expected, and one that is less favourable for living standards across the income distribution.

Other things that have happened which are relevant. At the same time, the economy has been hit by internationally induced supply shocks - mainly higher energy prices.

There are limits to what a fiscally constrained government could have done to ameliorate this situation. As I noted earlier, lifting the income tax threshold helped - a landmark policy shift in and of itself. But cuts in spending necessarily affected the welfare system as well, and unquestionably hit the poor. My Lib Dem colleagues and I would have taken action on benefits that more obviously assist wealthier people, but there you are.

So the need to deal with the deficit, and the impact of supply shocks, have been two unavoidable challenges.

Our aim has been to prevent the mass unemployment which was the awful consequence of a comparable shock in the interwar period and is the case today in southern Europe. We have been highly successful in increasing private sector employment - by 1.73 million since 2010 - and reducing unemployment to levels below that of almost every developed country bar Germany. Among the biggest improvements have been employment growth for the most disadvantaged - lone parents, disabled and older workers - largely because of this Government's policies.

But alongside the growth in employment has been growing concern about low productivity. Productivity is immensely important, of course. Improvements in the use of labour as well as capital and land are what drive up living standards in the long run. If there is a problem with productivity we should be concerned.

There is clearly a productivity issue in the short run. The idea that the basic UK economy suddenly became 10 percent less productive - not just compared to Germany, but to France, Italy and Spain as well - simply doesn't ring true. But the economy we now have, it maybe a short term phenomenon, is very strong employment growth, relatively low unemployment, weak wage growth and relatively weak productivity. The question is now how do we address that and what are the underlying causes.

It would be wrong to represent this as a story of capitalists exploiting workers. Labour income as a proportion of GDP has been remarkably stable. Over the broader sweep of history, Thomas Piketty's work suggests we ought to be far more concerned about wealth - asset - inequality.

Then there is the bizarre fiction - utterly self-defeating, I might add - that low productivity suggests British people are lazy. This is actually the exact reversal of the truth. The last few years have seen UK workers respond to straitened circumstances by working ever harder.

But the key to what is happening - as the IFS shows - is that we have seen a large increase in the aggregate supply of labour: a fall in unemployment; older workers near retirement staying on in the labour force; and - to some degree - migration, though within the last year, 90 per cent of new jobs have gone to UK workers.

As I have said, wage growth has been under pressure because of a quite astonishing increase in labour supply. The total workforce has been growing at around one per cent a year, and there has been an ever growing willingness of people to work at lower wages.

The question now, as growth strengthens, is how to improve the labour market so that we continue to have an economy that creates jobs and can respond to change, but allows real wage growth and improves living standards. This comes back to labour market flexibility.

Government policy plays a role. The combination of benefits reforms, our cutting taxes on labour through raising the threshold, and other reforms like abolishing the Default Retirement Age means that the incentives to work, particularly in low skilled jobs, have never been sharper. What we need to ensure is that this doesn't produce an entrenchment of low pay, low productivity jobs. So what are the things we need to do to adapt the model?

First, we need to maintain and strengthen the institutional machinery around the minimum wage. I am a big supporter of the minimum wage and the independent institutional structure around it. I value the way that the Resolution Foundation has sought to expand the Low Pay Commission's work by looking at the economy through a sectoral lens, for example. But we must safeguard its independence from those who want to politicise it, either because it is too radical in defending workers or not radical enough. What I am trying to do is strengthen enforcement and to steer them to take a forward-looking approach, guiding expectations towards real wage increases. Having a strong structure to protect the minimum wage and to strengthen enforcement does seem to be an essential building block in the machinery.

Another key step is encouraging companies to invest in training their workforces. The government has a role here too. We have understood from an early stage that this is important. The rapid expansion of apprenticeships - we will have supported two million of them by the end of this Parliament - has been a signal Coalition achievement, with our focus shifting now towards guaranteeing quality and increasing the number of higher-level, technical apprenticeships. We have also been trying to create a system which is "employer owned": employers design training standards and they also make a proper financial contribution. Good training raises both productivity and wages. LSE research confirms that training, together with innovation, is key.

Then there are our labour market reforms. We want to see flexibility if it helps promote investment and innovation, though - as I've suggested - it is possible to have an excessively flexible labour market which discourages investment in people.

Flexibility must be seen from the standpoint of the employee, as well as the employer. I am proud of having extended the right to request flexible working and of introducing shared parental leave. I am convinced that these help talented people manage complicated lives, and improve the quality of the workplace.

Equally, I am proud of having resisted proposals like scrapping the unfair dismissal rights, as argued for in the Beecroft report. To be fair, there were some good ideas in there. Reducing unnecessary red tape is always sensible - and we have tried to shift the emphasis from legalistic-style tribunals to ACAS-style dispute settlement. But the core recommendation of cutting basic rights to fair treatment on dismissal was a bad one. It was unjust, and it would have led to an even more short-term approach to the workplace - insufficient investment and training, and, by consequence, insecure workers.

Then self employment - one of the key phenomenons of recent years has been growth in self employment. Studies have shown that self employment accounts for 80 per cent of the - remarkable - increase in employment since 2007. According to Morgan Stanley, half of those gains are part time (though, in the last year, job growth has been in full-time employment). In many ways it's a good thing. Associated with entrepreneurial activity and creative ideas, but if this is going to be a positive idea it has to be associated with self employed people taking on more staff. It often is the first step to expanding entrepreneurship. It can also improve people's circumstances and aspirations. But, as the economy picks up, we need more of these "one-man bands" to become genuine employing companies.

The issue which has come to define the problem of insecurity in the labour market is zero hours contracts. Definitions are not precise, but data is accumulating that there are large number of work contracts - the latest estimate is 1.4 million - which have variable hours.

The last government looked at this issue and concluded that the National Minimum Wage and Working Time legislation were then sufficient to address it.

I have been gathering evidence over the last year which confirms that the issues are complex and the arguments far from one sided. Large numbers of workers - those beyond retirement age, students, single parents with young children - value jobs which do not demand fixed, and rigid, hours.

Equally there has been evidence of abuse, with some employers taking advantage of a weak labour market to impose poor, insecure conditions on their workforce. There is one particular abuse which we have consulted on - exclusivity contracts under which workers can be prevented from working for other employers even if no work is available on the zero-hours contract. The consultation received more than 30,000 responses. The Government will set out how it plans to tackle this issue very shortly.

I think more can be done, but it needs to be done intelligently, recognising the dangers of unintended consequences. There is one proposal which the opposition has been putting forward that it should be compulsory on an employer to offer a fixed-hours contract after a period of time on a zero hours contract - they say 12 months. I think we feel this is not very wise, because there are a lot of contexts where zero hours contracts work for the employee and the employer and if that were the case you would get a massive proliferation of zero hours unsatisfactory 11-month, zero-hours contracts in those sectors and firms where more rigid arrangements don't work well.

Where I personally think we ought to be going is looking at the right to request a fixed contract, building on the model which we already have for flexible working. I think that the area where we need to more forward and indeed I am looking at how we can best do that.

My last point is this. Common sense observation and sociological research suggests that more of us are concerned with relative income. Perceived unfairness and inequalities can make poor pay even more intolerable. Rising average pay may disguise the facet that the increases are biggest at the top end and median pay is not progressing. That is why I attach such importance to parallel reforms on top pay - now beginning to bear fruit in the more critical scrutiny being seen at company AGMs.

It is easy to advance such an argument at the Resolution Foundation, which has a natural affinity for these issues. The challenge - for you and for me - is to gain support for the same thesis in more sceptical settings.