The new Prime Minister, Liz Truss, has wasted no time in forging ahead with her promise to reform key areas of UK employment legislation in what is being billed as “a bonfire of workers’ rights”.
With the cost-of-living crisis and the Russian war against Ukraine occupying the political agenda, many commentators assumed that these changes were unlikely to be a pressing priority for the new UK government. However, the Retained EU Law Bill announced on 22 September and the mini-budget announcement of 23 September confirmed that Ms Truss intends to waste no time in making these changes.
Retained EU Law (Revocation and Reform) Bill
On 22 September, the Retained EU Law (Revocation and Reform) Bill was published. The Bill aims to ‘…enable the UK government to create regulations tailor-made to the UK’s own needs, cutting red tape and supporting businesses to invest…’.
EU employment legislation has long been perceived by many on the right of the political spectrum as being too pro-worker, and this Bill seeks to redress this issue by making it easier for the government to amend, repeal and replace retained EU Law. The accompanying press release reiterates a shift in focus from employee protection to measures designed to stimulate economic growth.
Importantly, the Bill provides for “sunset provisions” for retained EU law. This means that any retained EU law will automatically expire on 31 of December 2023, unless it is expressly codified into UK law (although there is an extension mechanism built in to allow some pieces of legislation to be retained until 2026).
So what does this mean in practice?
Potentially, employment law and working conditions could be facing the biggest overhaul since the 1970’s. In particular, this innocuously named Bill could result in significant changes to the current statutory minimum provisions relating to working time, paid holiday, discrimination, health and safety, agency worker rights and TUPE.
The Working Time Regulations 1998 currently protect workers from being subject to excessive working hours. They were adopted as a health and safety measure and put positive obligations on employers such as:
- Ensuring that a worker’s average working time does not exceed 48 hours per week;
- Mandating minimum rest periods and adequate rest periods where there is a greater risk to worker health and safety; and
- Mandating that all full-time workers must receive 5.6 weeks’ paid holiday each year.
As these provisions are all derived from the EU’s Working Time Directive, they are all potentially impacted by the sunset provisions. This means that they will be automatically revoked unless a UK specific equivalent is enacted.
But how likely is it that these rights will be scrapped? The statutory minimum entitlement to 5.6 weeks’ paid holiday for all full-time employees is generally accepted by employers, and a shift away from this norm is likely to be extremely unpopular with workers and the unions. However, it might be more palatable for changes in the way that holiday pay is calculated, particularly given recent cases that, by many, are seen to be unduly favourable to employees. On the other hand, a change in the 48-hour working week (where opt-outs are already commonplace) is likely to be much less controversial.
Discrimination goes further than just employment law and as such wide-scale reform is unlikely. For example, the UK remains a member of the European Convention of Human Rights. Previous suggestions regarding reform focussed on capping the upper limit for discrimination awards in the Employment Tribunal, which was not possible at the time due to EU law. As such, the new Bill means that a compensation cap for on discrimination awards could now be back on the agenda.
The Agency Worker Regulations implement the EU Temporary Workers Directive. These regulations sought to give greater protection, security and benefits to agency workers.
Many in the recruitment sector would agree that there is a pressing need for a holistic review of the law in this area to be more reflective of the diversity of relationships that exist within the modern labour market i.e. the gig economy. Arguably, the Bill gives the Government the opportunity to do just this.
The Transfer of Undertakings (Protection of Employment) Regulations 2006 (TUPE) originates from European Law, specifically the Acquired Rights Directive. It aims to protect employees’ rights when a business transfers to new ownership.
TUPE is notoriously complex, and businesses often find its provisions frustrating and administratively burdensome. It is expected that TUPE reform will focus on simplification and making these provisions more business friendly. It is worth bearing in mind, however, that much of the existing TUPE protection is “gold plated” - in other words the UK Government already opted to provide an increased level of protection within the TUPE Regulations as compared to the originating European legislation. As such, those hoping for key provisions to be overhauled, may find themselves disappointed.
The Bill has not been debated in Parliament and may yet have many iterations before it becomes law.
The sunset extension mechanism could even push reform back until after the next General Election, due in 2024. With this in mind, there remains much uncertainty as to what changes will take place, and how quickly.
Taxation
IR35
In an interview in August 2022, the new Prime Minister firmly expressed her views on IR35 stating, in essence, that the self-employed should not be treated the same as big businesses, as they lose out on key benefits such as paid holidays and the tax system should acknowledge that.
In brief, the off payroll working rules, commonly known as IR35, is a piece of tax legislation which allows the government to recover employment taxes where individuals are operating as “disguised employees”. As such, although these individuals are accounting for tax on a self-employed basis, the government’s view is that they should be subject to tax and national insurance contributions in the same way as employees. The latest reforms in April 2021, shifted the responsibility for determining a worker’s tax status to large and medium end user clients, who were then potentially liable for any unpaid tax and national insurance contributions as a result of these arrangements.
The prospect of reform was met with cautious optimism by contractors and the recruitment sector more generally, not least because of a perceived reluctance by the Treasury to give up this new additional revenue stream in the current socio-economic climate. However, in his mini-budget on 23 September 2022, the Chancellor confirmed that IR35 was to be scrapped from April 2023 - an extremely pro-contractor/pro-self-employed reform. This was part of his “first steps” in simplifying the tax system and removing unnecessary costs for business.
However, whilst many will welcome this announcement, this flip flopping of government policy will no doubt be met with frustration from businesses who have already spent significant time and resources on compliance with the new roles (and will have to invest further when the rules change again).
Whilst the Leader of the Opposition, Sir Kier Starmer, has not expressly commented on Labour’s position on this issue, there is a concern that the IR35 legislation could be a yo-yo piece of legislation and that the current position could be re-enacted if Labour were elected at the next general election.
Employment Taxes
In April 2022, national insurance contributions increased by 1.25% to fund the NHS. Given the cost-of-living concerns, this increase was criticised. The new government has confirmed that they will be reversing this increase, removing the additional requirement on employers/payroll to list this national insurance increase separately on payslips.
From April 2023, the basic rate of income tax will be cut from 20% to 19%.
Impact
As the UK moves towards greater deregulation, the impact of these changes could be huge, with the greatest impact likely to be felt by the most vulnerable, lowest paid workers (such as those on zero-hour contracts and agency workers). However, even larger businesses may eek to take advantage of cost saving opportunities arising from these changes given the current economic climate.
But workers are unlikely to give up their rights without a fight. In the context of the current wave of industrial action, these changes could result in increased unionisation and yet more industrial action to try and protect the basic employment rights that have been taken for granted in the UK for more than 20 years.
Either way, these announcements herald yet more volatility and uncertainty; arguably, the last thing UK businesses want given they are already struggling with the post-pandemic recovery, an unprecedented rise in energy prices, a collapse in the pound and global socio-political unrest.
This article was updated on 3 October to reflect changes to the government's proposal to abolish the 45% higher rate of income tax.
