The government's employee bill should put the balance sheet right for small businesses

Keir Starmer and Rachel Reeves have made their views on the British economy clear; their goal is a country with high wages and high productivity, where growth does not come at the expense of the people who run the country.

To this end, the government plans to reform planning, establish a British energy company and introduce a national wealth fund.

The recent Budget also promises to create room for maneuver through changes to employers’ inheritance tax and national insurance schemes, while redefining the national debt to boost investment.

This view relies heavily on the Workers’ Rights Bill, which quietly slipped through its second reading in the House of Commons by a healthy margin of 281 votes a week ahead of the budget.

The bill aims to extend workers’ rights from day one of employment to address issues such as zero-hour contracts and dismissal and re-employment, while formalizing work-life balance and collective bargaining measures.

A lot of attention has been paid to taxes, and rightly so. But taking a step back, it’s crucial to consider how the changes in taxes we’ve seen will also be affected by changes in employment itself, and how this will impact small businesses.

Follow the wind at your back

This new deal for employees is coming. As a result of the pandemic, flexible or remote working, better working conditions and a focus on culture have become increasingly the norm in UK businesses. It seems like this bill is just an expression of that, and it makes a lot of sense.

Private and public companies are increasingly implementing ways to provide their employees with a better work-life balance. Even the financial sector, which is among the most resistant to these changes, has recently seen work-life balance and the issue of burnout move up the agenda.

Following opposition from junior staff, there have been attempts on both sides of the Atlantic to change the culture, with JPMorgan restricting working hours and flexible working now the norm in the UK financial sector.

Such strict regulations disproportionately affect small businesses.

These concessions illustrate that most industries are now at least partially convinced that you can maintain or increase productivity while improving work-life balance.

So essentially this bill is a legislative extension of what is already happening in the world of work. It will anchor the benefits of flexibility and balance, while reaffirming the government’s ethos that productivity can be boosted through better balance at work.

It is certainly a progressive step that will undoubtedly bring many benefits. But it is not a panacea. Britain’s businesses are not all the same, so treating them as if they were will create unfair hardship for some.

Startups, SMEs and entrepreneurs

These issues will be most obvious for start-ups, SMEs and entrepreneurs. For these companies, the first two years are critical, and many companies fail during this time due to cash flow constraints.

Requiring small businesses to immediately offer expanded rights and benefits to new hires could lead to more conservative hiring practices and divert resources from innovation and growth to compliance and HR management.

Startups often work with lean teams and require adaptability. It can be difficult for them to meet these demands without compromising operational efficiency.

The inflexibility imposed by the bill could hinder their ability to quickly pivot or scale back in difficult times. Such strict regulations disproportionately affect small businesses, especially when these businesses thrive on the ability to take risks and move quickly.

We need to be careful about introducing too much bureaucracy because this is not what makes Britain an agile or creative place.

So as good as the principles of the bill are, one would hope that the same flexibility and balance it seeks to provide for workers could be reflected in the way the government deals with businesses with different needs.

A few specific, targeted measures to help certain companies would reassure them and ensure that innovation is not stifled. For example, the increase in the Annual Employment Allowance will make a real difference to businesses, alleviating the build-up of tax increases and regulations specifically affecting small businesses.

Growth is great, and we all want it, but it fuels courage and the appetite for risk.

However, further compromises may be necessary. For example, finding a middle ground between day one and year two, specifically for some types of businesses, would also work. For example, six to twelve months would achieve a balance that would not be unfair to employees and would not hinder the desire to hire so many people.

It is also possible to make these kinds of changes without looking like they have waved the white flag on their vision of balancing growth with well-being or backtracking on the budget; Compromise is not the same as capitulation.

Balance in the approach

Growth is great, and we all want it, but it fuels courage and risk-taking. While this vision for a high-wage, high-growth Britain is both admirable and necessary, the government must strike a balance for smaller businesses.