Cable cuts compensation: but why?

by Joseph Markus

Vince Cable, the Business Secretary, is a consistent thorn in his Coalition-partners’ sides. So problematic has he been that, in a rightward reshuffle, the Tory-half of Government appointed new ministers to his department to keep up the focus on deregulation.

That focus was also the focus of the Beecroft Report, commissioned by David Cameron and prepared by the venture capitalist, Adrian Beecroft. The Report called for, amongst other things, massive deregulation in the field of employment law, blindly focussing, in the absence of any real evidence, on the assumption that regulation was what held employers back from hiring. So the mantra went: where there is deregulation, there are jobs.

One central pillar of the Beecroft proposals was the concept of compensated no-fault dismissal, effectively removing the protection of the unfair dismissal laws, as well as the introduction of tribunal fees, ranging on a spectrum from around £200 to £3,750 per claim. Other recommendations included that the Government look into refusing to implement the Agency Workers Directive, intended to give greater security and rights to agency workers in what is a particularly insecure working arrangement.

Another element, one that re-entered the news on Friday, was the proposal to reduce the amount of compensation recoverable under the rules. Interestingly, it is this proposal that Dr Cable, who had roundly denounced the proposals in May (provoking the increasingly common criticism that he is a ‘socialist’), has opted to take forward.

At present, the cap for unfair dismissal compensation is £72,000. But, to be clear, the maximum award is rarely seen: usually only in about 1-2% of cases a year. The current average rests at around £5,000, with approximately 6% of cases receiving awards of over £30,000.

You would be forgiven for thinking, then, that reducing the maximum, an amount that is largely irrelevant to the majority of claims, might also be largely irrelevant to the majority of employers affected by claims.

In fact, one of the commonest reasons cited by employers for disliking unfair dismissal rules is the ease with which employees can extract money from employers through the simple act of bringing a claim in the first place. The claim may be entirely unfounded but an employer will often feel that the simplest approach is to pay the employee a small sum of money to go away. And, of course, for smaller enterprises, that ‘small sum’ may seem rather large or intimidating. That is not to say that small businesses necessarily feel that this constrains them from hiring new workers where needed; arguably the greater cause of that particular problem is the economic climate rather than employment regulation. (In fact, much suggests that workers kept in a position of perpetual insecurity are less likely to spend and less likely to contribute to growth.)

Vince Cable must know all this. Why, then, has he chosen a reform that penalises mostly legitimate, and mostly high-paid, claimants in favour of other reforms that may well tackle the real problem, which is the perception by employers that even bad claims cost money?

Perhaps the best explanation is that this is another example of where it is important to be seen to be doing something, whether or not that amounts to good policy. Perhaps, for Vince, in the interests of coalition unity, it was the right time to throw something to the more vocal right flank of the Tory party. It is something small, but something that is visible. Once again, it seems, the merits of policy take a back seat where Coalition Unity is concerned.

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