United Kingdom: Developments in working life – Q1 2016

The forthcoming referendum on the UK’s membership of the European Union and the UK’s productivity gap are the main topics of interest in this article. This country update reports on the latest developments in working life in the UK in the first quarter of 2016. 

‘Brexit’  the UK’s role in the EU under continued scrutiny

On 20 February 2016, the British Prime Minister announced that a national referendum on the UK’s continued membership of the European Union would be held on 23 June 2016. This followed his negotiations with the other EU leaders, which led to a package of reforms agreed at a summit in February. The reforms include the exemption of the UK from ‘ever closer union’ as well as curbs on UK welfare payments to migrant workers. Debate about the referendum and the possibility of the UK leaving the EU (dubbed ‘Brexit’ by the media) has intensified and the issue continues to receive extensive coverage.

There has been a range of responses from social partners. On the employers’ side, the Federation of Small Businesses and the British Chambers of Commerce have adopted a neutral stance, while the Confederation of British Industry (CBI) strongly endorses continued membership. The CBI’s review of academic studies into the impact of EU membership on the UK economy concludes that the long-term economic benefits outweigh the costs. The mid-range estimate of the overall impact on the UK economy is around 4–5% of GDP while the most positive study estimates benefits as high as 9.5% of GDP. Another CBI report claims that an exit from the EU could cost the UK economy GBP 100 billion (5% of GDP; €129 billion as of 27 April 2016) by 2020, lead to 950,000 job losses, and leave household incomes between GBP 2,100 (€2,705) and GBP 3,700 (€4,766) lower.

The TUC, the UK’s national trade union centre, is also campaigning to remain in the EU, stating that workers’ rights and protections would be at significant risk in the case of exit. The response from individual unions varies: some are campaigning for exit while others wish to retain membership.

Questions intensify about the UK’s productivity gap

Two high-level reports published in the first quarter of 2016 - Labour Productivity from the  Office of National Statistics and the International Monetary Fund’s United Kingdom: Selected Issues - highlighted the ongoing and worsening problems with productivity in the UK. The UK has two linked productivity problems. First, the country has yet to return to the productivity level reached before the financial crisis: the average annual growth of output per worker in the UK dropped from 1.8% during 2000–2008 to nearly zero during 2009–2014. Second, the UK’s level of productivity is below that of most other advanced economies. The government has made raising productivity a central element in its economic agenda, outlining the need for improvements in transport and digital infrastructure, deregulation, increased investment in universities and science,  and investment in low-carbon energy and in skills.

However, analysis by the Institute of Public Policy Research, the Institute of Employment Studies and the TUC points to a different set of causal factors and solutions. Their research highlights a context of insufficient capital investment both by private companies and government, in which low-skilled, poorly paid jobs have proliferated. A number of studies have found that the stagnant pay levels of the past decade, in addition to distrust of management and resentment at CEO remuneration, have led to high levels of employee disengagement. For example, a study by Investors in People in January 2016 found that 60% of people are unhappy in their current roles. Data from HR consultants Aon Hewitt shows that UK employees’ engagement levels are lower than those in other OECD nations and are flatlining. The figures also show a 28% year-on-year decline in perceptions of the workplace experience. These analyses propose that these issues must be addressed if the UK’s productivity gap is to be addressed.

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