Expertise will be UK’s next big export

By 2020, the UK would no longer be subject to its employment provisions should a vote to leave the European Union be successful. Picture: Complimentary

The introduction at the end of July of fees for workers submitting claims to the employment tribunals (£160 or £250 to lodge a claim, with an additional charge of £230 or £950 if the case proceeds) is one of a raft of recent measures shifting the balance of power in the employee-employer relationship. Not surprisingly, this move has resulted in a divergence of views between key bodies on either side.

While the CBI has welcomed the introduction of fees as a good way of discouraging weak claims, trade unions are deeply unhappy and Unison has been given permission to seek a judicial review, which will take place in October.

Whilst we will soon learn if the fees are to stay in place, there are far greater challenges looming for the employment relationship: the prospect of ongoing and serious economic challenge, a potential break-up with the EU and possible Scottish independence may mean an unprecedented period of transformation for the employment relationship.

Employers must find creative, nonfinancial ways of attracting staff, much as the John Lewis Partnership have been doing for years. Picture: Complimentary

Macroeconomics will be the dominant force, in particular the need to reverse a 30-year run of trade deficits created by importing significantly more goods and services than we export. Whilst there must be growth in the export of goods, reversing the deficit will be achieved by a proliferation in the exportation of services to the wider global economy, particularly developing nations with new-found prosperity.

The exportation of know-how

Government has got this message; 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. Expect, therefore, to see an explosion in the exportation of know-how, innovation and expertise, notably in the labour-intensive areas of design, engineering, finance, healthcare and education.

Expect, too, to see many more UK employees spending a proportion of their time overseas and, therefore, being subject to employment law in more than one jurisdiction.

This need to accelerate export in services is currently hampered by UK salary levels. Like house prices, 15 years of musical chairs spun salaries to an all-time high, with perpetual salary increases used to attract and retain the best of staff. The Organisation for Economic Co-operation and Development estimates that between 1999 and 2012, the wage costs per unit of production in Western Europe rose, with the exception of Germany, by 30 to 45 per cent. Labour costs must, therefore, reduce significantly.

But such a reduction in labour costs cannot be achieved simply by further redundancies, as there comes a tipping-point at which such action proves counter-productive; an over-stretched workforce will ultimately damage brand, product and reputation. Instead, it will have to be achieved by reducing salary levels in actual terms, perhaps by as much as 20 to 25 per cent. Such cuts cannot, realistically, affect those on the lowest of wages because inflationary pressures built up by recent economic policy are surfacing in the form of a painful increase in the cost of living. Expect, therefore, to see a squeezing of salaries from the top down which, when coupled with the headwind of high inflation, will test even the best of employment relationships. Expect, in response, to see employers investing quickly in finding creative, non-monetary ways of attracting and retaining staff, much as highly-rated employers like John Lewis have been doing for years.

A collision course with the EU

The need to reverse the trade deficit also sets the UK on a collision course with the EU. The UK electorate appears dead set against further integration and increasingly frustrated by the status quo. That frustration is only likely to grow, as it is perceived the pressing need to increase exports is being held back by apparently expensive and onerous European employment provisions.

Whatever the outcome of a referendum, there is a real risk that by 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 that would involve, it would afford the UK a freedom to remould the employment relationship as it sees fit. But that freedom would be unlikely to extend to Scotland if it votes for independence in 2014. For an independent Scotland to survive it must, by right or by fresh application, remain part of the EU. Given a reduced political power, it would be forced to retain EU employment provisions. The result may be, for the first time, a significant divergence in employment rights between Scotland and the rest of the UK.

• John Norrie is legal director and head of employment law, Gillespie Macandrew www.gillespiemacandrew.co.uk

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