What with unprecedented levels of challenge and change ahead, John Norrie, Director and Head of Employment Law at Scottish law firm, Gillespie Macandrew LLP, imagines what UK employment and the economy will look like in 2020.
An unprecedented period of change lies ahead for the UK, during which a number of ingredients may come together to produce a fresh economic environment, in which the employment relationship must adapt and thrive.
Let’s consider a UK that by 2020 has: withdrawn from the EU; granted independence to Scotland; had two terms of Conservative-lead Government, just surfaced from a decade of austerity and low economic growth, had a decade of over-supply of labour and wage reductions in real-terms, experienced a boom in the number of elderly workers, following nine years of the abolition of the default retirement age, and a young generation with many qualifications but little practical experience. Unsurprisingly, macro-economics will be the dominant force in re-moulding the employment relationship over the next decade. Leaving aside interest rates, budgetary deficits and fiscal debt, the key economic concern is, and will be, the UK’s balance of payments deficit – otherwise known as ‘trade deficit’.
The UK has experienced a run of trade deficits, created by importing more goods and services than we export, for over 30 years now. The trade deficit remains at a historically high level and until reversed, wealth continues to flow from the UK. Whilst such a reversal requires continued growth in the exportation of goods, it will be achieved primarily by vastly increasing the exportation of services to the wider global economy, particularly developing nations with new-found prosperity. Expect an explosion in the export of innovation and expertise in the labour-intensive areas of design, engineering, finance, construction, manufacturing, healthcare and education. Expect, and prepare for, an increasing number of employees engaged by UK organisations spending a proportion of their time overseas. Expect to be conversant with employment law in a number of jurisdictions and, finally, expect the legislature to prescribe exactly the circumstances in which peripatetic workers will be subject to UK employment rights, currently an unnecessarily complex and uncertain area of law.
Exportation of ‘know-how” to the wider global economy is beginning to surface within the deficit figures themselves. In the three month period to November 2012 there was, in fact, a surplus in the export value of services of £17.3bn, unfortunately trounced by a huge deficit in goods of £27.1bn. Over the same period, a drop in exports to continental Europe was partially offset by a rise in the sale of both goods and services to other areas of the global economy. Government has the message too. In February David Cameron and the largest-ever UK trade delegation descended upon India, offering immigration concessions to Indian nationals, in return for access to its financial markets. Likewise, the NHS is gearing up to commercialise its expertise by making money out of healthcare around the world. But the pressing need to accelerate export in goods and, to a greater extent, services, is hampered by a matter at the heart of the employment relationship, UK salary levels. Labour costs remain too high for both the domestic market, with its diminishing buying power, and the global market into which we must leap.
Like house prices, 15 years of musical chairs spun salaries to an all-time high. In addition, talent has mostly been purchased rather than developed. The OECD estimates that between 1999 and 2012 the wage costs per unit of production in western Europe rose, with the exception of Germany, by between 30 percent and 45 percent. A re-alignment is overdue and wage costs must arguably fall to a level akin to 1999. But from where can such cost savings realistically be made? Well, we are fast approaching the tipping point at which labour savings, through reducing the size of the workforce, becomes counter-productive, damaging brand, product and reputation. Ruth Johnston, a renowned Cognitive Behaviour Therapy practitioner, specialising in vocational rehabilitation, and engaged by some of the largest insurance companies in the UK, has witnessed a marked rise in the number of employees suffering from work-related stress, depression and anxiety. Johnston firmly believes the UK is now witnessing what she describes as: “the human cost of high exposure to pervasive and complex company restructuring, role changes and ambiguity, cost-cutting redundancies and de-layering strategies”.
Whilst there will always be individuals simply unsuited to high pressure positions, she identifies a worrying new trend where; “highly skilled and competent managers who have performed well for many, many years, are finally reaching breaking point as the pressure and demand of unachievable targets and objectives, coupled with workload in excess of resource, takes its toll.” The only remaining and viable option for reducing UK labour costs to the degree necessary will be to reduce individual salaries in actual terms, and to do so significantly and swiftly. By the turn of the next decade, expect to see salaries reduce by at least 30 percent in actual terms, and expect such a correction to affect each and every person earning £20,000 or more. Such savings cannot and will not come from those on the lowest of salaries because inflationary pressures built up by recent economic policy will surface in the form of a marked increase in the cost of living. There will be a squeezing from the top down.
Such inflationary pressures will also make wage cuts in actual terms feel doubly painful, a kind of wind-chill factor. This will prompt a marked, and more co-ordinated, resistance from employees to future restructuring exercises. Expect a rise in union membership, and for non-unionised workforces expect a spike in employees joining forces to fund legal advice and representation (“Employee Collectives”). The pressure to reduce labour costs without further reducing the number of employees, and the need to do so against increasingly sophisticated employee resistance, will force UK unfair dismissal law to change in a radical way. The current practice of perpetual restructuring will soon grind to a halt as it becomes increasingly simple for lawyers to attack and dissect increasingly complex restructuring exercises. Such forensic dissection is currently rare due to the risks and expense to employees, but it will become the norm as employees move to the purchasing of advice collectively. The legal definition of ‘redundancy’ will, therefore, become impossible for employers to establish, leaving only the lifeline of Some Other Substantial Reason (SOSR) which, arguably, doesn’t permit salary reduction by means of dismissal and re-engagement where reducing cost is the sole reason and where the vast majority of employees refuse re-engagement. It’s hard to predict how unfair dismissal law will be amended to better facilitate an orderly wage reduction in the UK, but it may well come via an express right for employers to unilaterally vary the contract of employment such as to reduce salaries. Any such right would have limits (for example, a maximum 15 to 20 percent reduction) and be subject to offering something in return, for example, guaranteeing affected employees security of tenure for a fixed period of time, say five years. Whilst such a radical reduction in employment rights will today equate to political suicide, expect that to change as expectations reach equilibrium with reality. In addition to driving down salaries in actual terms, the need to reverse the trade deficit sets the UK on a collision course with the EU. The UK electorate appears dead set against further integration and, to varying degrees depending on what newspaper you read, increasingly frustrated by the status quo. That frustration is only likely to grow as it is perceived that the pressing need to increase exports, in particular to developing economies, is being held back by apparently expensive and onerous European employment provisions.
Whatever the outcome of a referendum in 2017, expect that by the year 2020 the UK will no longer be subject to EU employment provisions, either by negotiating an opt-out or, should fellow EU states refuse the UK such a competitive advantage, by being forced to leave the EU. Leaving aside the significant downsides, this will afford the UK a freedom to re-mould the employment relationship as it sees fit. Expect it to yield some quick and simple labour savings, for example, removal of the costly and unfair anomaly of annual leave accrual during long-term sickness absence and during maternity/paternity leave.
Such freedom will also permit the UK to properly and quickly address a fast-approaching societal car crash. Removal of the default retirement age (“DRA”) has been the most significant cultural shift in the employment relationship for many decades, but it will take five to ten years for its consequences to be fully appreciated. As the ‘baby-boomers’ approach the previous DRA, a young, talented and increasingly frustrated youth will face mounting barriers to both entering and developing a meaningful career.
In response to a serious escalation in lobbying by youth-interest groups, expect the legislature to play a significant role in addressing the current imbalance. Expect the re-introduction of a DRA, albeit with an increased age-limit of 75. This will follow two key realisations. Firstly, and sadly, the realisation and acceptance that forced retirement is a necessary evil for the balancing of society’s competing interests. Secondly, the realisation and acceptance that the current option of adopting a fixed retirement age if it can be justified as “proportionate means of achieving a legitimate aim” is onerous and, whatever the guidance to flow from upcoming tribunal and appeal court decisions, prohibitively uncertain for employers given each case falls to be tested on its own particular merits.
Expect this to be accompanied by other measures, such as increasing from 21 to 25 the age at which the full national minimum wages applies. Likewise, expect a wholesale return to credible apprenticeship schemes whereby apprentices, of whatever age, can be employed by registered employers on very low cost training contracts in return for a lengthy period of security of tenure, possibly five years or so.
In addition to a divergence with continental Europe, employment rights in Scotland will for the first time diverge with the rest of the UK if following the 2014 referendum its people vote for independence. For an independent Scotland to survive it must, either by right or by fresh application, remain part of the EU, but unlike the rest of the UK its reduced political power will force it to retain EU employment provisions. No one has 20/20 vision when predicting the future but most will agree the status quo is not an option.
