Paying the price of protection

Predicting the outcome of the next General Election is a national sport, with William Hill offering 2-to-5 on a Labour win.

If the country does swing left then it’s odds on that by this time next year the UK will be signing up to the Social Chapter.

There’s been a lot of hypothesising around the issue already but, while there’s little accountants and financial directors can do to change Government policy, now is certainly the time for UK business to take a hard look at its cost structure management. The price of implementing a raft of new EC employment directives is going to be considerable.

It is important to note that the Social Chapter is not a set of rules for EU governments to follow, but procedures for the development of European social policy. There’s no mention in the Chapter, for example, of a minimum wage, limitations on working hours or interference in pay negotiations.

It is equally important to distinguish fact from hype and to differentiate between legislation, mooted or enacted, which will adversely affect business growth and employment, and laws governing practices most well-run businesses would adopt anyway.

The works council directive, for example, which will cover approximately 1,235 European companies and 2,600 subsidiaries, representing some 15 million workers, is being voluntarily adopted before the 1999 deadline by several UK firms, including United Biscuits, Coats Viyella and Courtaulds, with several more from GKN to National Westminster Bank and Redland currently negotiating their introduction.

Majority voting

European legislation on social security and job creation requires unanimity among member states, while decisions on areas including health and safety, and gender equality go through on majority votes. Some employment legislation comes outside the sphere of the Social Chapter – the working time directive covering maximum working hours, night work, rest periods and holidays – and will therefore have to be implemented in the UK anyway.

The real problem lies with some of the directives likely to be tabled under the Chapter, or independently of it, which may be passed through majority rather than unanimous voting. Many of these will almost certainly be difficult and expensive for businesses to implement.

According to Treasury figures, the parental leave directive, which provides entitlement of 12 weeks’ unpaid paternity leave after the birth or adoption of a child and time off for urgent family reasons, may cost UK firms some # 192m a year. The directive on part-time work, which proposes that some part-timers should receive pro rata the same basic pay, pensions, other rights and holidays as full-timers, may cost in the region of # 1.5bn.

Staying competitive

The CBI tells us that our present employment legislation is adequate to protect our workers while still allowing us to remain competitive. But where does it draw the line? At the debate on employment at April’s Lille meeting of the G7 countries, the US representatives argued for less not more regulation in Europe’s labour markets as a way to reduce unemployment. The Europeans said this would reduce wages and increase job insecurity. But of the US and Europe, which has been the more successful in creating jobs?

Europe is rapidly falling behind other regions of the world. Competitiveness is largely about containing costs, and further employment legislation which imposes substantial costs on business can only damage this. And the sector of the economy which will be hardest hit is small to medium-sized companies. While multinationals may be able to absorb costs arising out of European employment legislation, smaller businesses just cannot bear the extra financial burden and continue to grow.

Accounting jobs

There are two implications of increased regulation of particular concern to accountants. First, the likely reduction in permanent headcount as business tries to get round the costs of implementing legislation, and this after a recession which has affected jobs in the professional sector as much as in any other. Second, the effect of any demise in the SME sector on self-employed, temporary and contract staff.

A reduction in permanent employees usually leads to an increase in temporary and part-time workers of all levels. Today, there are approximately six million people working in such employment – 25% of the workforce – and the figure is growing. An increasing proportion of them, particularly accountants, do so from choice even if they did not start out in that way.

Ultimately, the effects of regulation proposed by the Social Chapter will place Europe behind Asia, behind the Americas and even behind emerging economies on our doorstep in terms of productivity and costs. It will transform the pattern of employment from a healthy mix of permanent and temporary to one in which the few will have proper jobs and the majority will wander from unemployment to temporary employment and back. It will also savage the SME sector which, in turn, will have a considerable impact on prospects for self-employed and contract accountants.

James Wheeler is managing director of Hewitson-Walker, specialists in temporary financial recruitment.